China Tyre Industry Targeting Complete Radialisation by 2015
On 12 October China’s Ministry of Industry announced a new policy for the local tyre industry aimed at promoting environmentally friendly and energy-efficient development but it looks likely to have a knock-on effect on global players as well. One of the key points of the policy is that it sets out radialisation targets for each of the main product sectors. By 2015 the passenger car segment is expected to reach 100 per cent radialisation, with a 90 per cent goal for heavy truck tyres and 85 per cent for light truck tyres.
There have also been moves to limit the proliferation of small plants. As a result new permits will reportedly only be granted for plants with capacity of at least 6 million passenger car and light truck tyres a year and/or truck and bus tyre plants of 1.2 million. By the end of 2011 no new licenses will be issued for industrial tyres.
At the bottom end of the production scale the Ministry of Industry has plans to phase out plants producing less than 500,000 units a year of truck and bus bias tyres.
Commenting on what this might mean for European tyre makers looking to invest in production in China, analysts at Morgan Stanley suggested the news offers a mixed read. “The positive side is that it accelerates and guarantees a high penetration of radial tyres in the Chinese market – and EU makers are undisputedly among the world leaders in such technology at this time. The flip side is that the current planned expansion in capacity is too slow for companies under our coverage to be able to capture all the growth in the Chinese radial market.”
With this in mind the market watchers suggested that companies with the write financial position may seek to capitalise on the opportunities the Chinese market offers while the door is still open, citing Michelin as an example: “we believe the pace of Michelin capacity investments could increase.”
Another potential solution would see EU tyre companies seeking to establish or extend agreements with local players in joint-ventures, mergers and acquisitions, off-take agreements etc. However, the Chinese authorities are said to be too keen on the creation of “one or more strong independent local players that would eventually be prime competitors in the global marketplace” to let this happen to easily. At any rate the received wisdom is that this outcome is pretty much inevitable.