In just two weeks, the domestic tire industry once again ushered in a wave of price increases covering all categories.
Today, many tire companies such as Zhongce Rubber and Sailun Tire simultaneously issued price adjustment notices. In order to cope with the pressure of raw material costs, they will increase the prices of many types of their products. The price increases are generally between 3% and 5%.
A reporter from China Finance News learned from the industry chain that many tire companies including Zhongce Rubber (603049.SH) and Sailun Tire (601058.SH) acted simultaneously today.
Among them, based on the price increase letter on April 1, Zhongce Rubber increased the price of some models of all-steel tires by 1%-3%, butyl inner tubes and pads by 2%-5%, and will implement supplementary price adjustments from April 16; Sailun Group will increase TBR products by 3%-5% from May 1; Wanli Tire plans to increase the price of all TBR domestic brands by 3%-4% from May 10.
Some relevant industry insiders said: “Right now, the price of butadiene is soaring, and the price of synthetic rubber continues to be high. Due to the superposition of multiple factors, tire companies are under tremendous cost pressure.” In his view, it is still difficult for tire companies to fully cover the cost increase with this round of price increases.
When this round of cost disruption subsides, the profitability of tire companies may truly recover.
In fact, since March, many tire companies have begun to issue price increase letters one after another.
All-steel tires, semi-steel tires and other products from Zhongce Rubber, Linglong Tire (601966.SH), Sailun Tire and other companies generally increase prices by 2% to 5%, with some product specifications increasing by nearly 10%.
Zhongce Rubber even sent three letters in a row on March 31, stating that from April 1, passenger tires, bias tires and off-highway tires will increase by 3%-5%, all-steel TBR products will increase by 2%-3%, and inner tubes will increase by up to 8%. It also clearly stated that there will be another price increase on April 16.
From the wording of the price increase letter, the pressure brought by raw material costs on enterprises is evident.
Zhongce Rubber stated in its price increase letter that due to the complex changes in the global market, the prices of major raw materials for tire production (such as natural rubber, synthetic rubber, carbon black, etc.) have continued to rise rapidly recently, resulting in a sharp increase in tire production costs.
The magnitude of this adjustment is far lower than the increase in costs, and raw materials have been in short supply.
Wanli Tire also stated that since April, tire raw material prices have continued to run at high levels, tire raw material prices have risen sharply, and tire production costs have far exceeded expectations.
The reporter noticed that what the above-mentioned companies said was true.
Data show that in the first quarter of this year, the spot price of butadiene exceeded 18,000 yuan/ton, with a cumulative increase of more than 118%, setting a new high since 2017; butadiene rubber prices rose from 11,960 yuan/ton in early January to 18,140 yuan/ton in early April; even carbon black, with a relatively stable price, has increased by more than 13% in a single month.
Longzhong Information data shows that as of April 2, the gross profit of 205/55R16 products of a mid-range brand of semi-steel tires was -1.11 yuan/kg, a month-on-month decrease of 0.76 yuan/kg, and the degree of loss was further magnified compared to the previous period.
“A price increase is definitely better than no increase, but the current price increase of 3%-5% is indeed difficult to cover the increase in costs, and many companies are struggling to cope with the pressure of losses.” A relevant person from a tire company admitted to reporters that this round of price increases is essentially a passive adjustment caused by industry cost restructuring, rather than the company’s active pursuit of profitability.
If raw material prices continue to run at high levels, there is a high possibility of a new round of more substantial price adjustments in the industry.
Wanli Tire also made it clear in today’s price increase letter that it does not rule out the possibility of further price adjustments in the future based on changes in raw material prices and market environment.
When can tire companies see real profit recovery?
The aforementioned people said that from the perspective of industry operation rules, the core lies in the time mismatch between the fluctuation of raw material prices and the transmission of price adjustments by tire companies, that is, the price adjustments of tire companies usually lag behind the fluctuations in raw material prices.
“Therefore, when raw material prices rise rapidly, corporate profit margins are significantly compressed; similarly when raw material costs fall, tire companies’ gross profit margins will gradually rise. At this stage, tire companies are more urgent in their pursuit of profits.” The person further said.
