Shandong Tire Industry Review of 2011 and Outlook for 2012

I. Review of 2011 Situation

　　1. Production and Sales Status of Tires in Dongying Area, Shandong in 2011

　　In 2011, the semi-steel tire production capacity of tire manufacturers in Dongying and its surrounding areas reached 153 million sets/year. Semi-steel radial tires were mainly exported to European and American markets, with 90% of products from semi-steel tire enterprises represented by Jinyu Tire and Yongsheng Tire being exported. Among these, the United States accounted for 30%, Europe around 21%, and other regions 40%. The special safeguard case on tire imports to the US and the European debt crisis severely hampered Shandong's tire exports, leading to significant inventory pressure for semi-steel tires. Currently, the Dongying area relies on African, Middle Eastern, and South Asian markets for export support. The Dongying area's all-steel tire production capacity is 45.3 million sets/year, with 90% of all-steel radial tires represented by Xingyuan Group and Shengtai Group sold domestically. In the Jiaodong area, nearly 70% of semi-steel tires from Triangle, Linglong, and Double Star are exported, and 50% of all-steel tires are exported

　　During 2011, Delibao Tire added 24 million sets/year of semi-steel tires; Hengyu added 12 million sets/year of semi-steel tires; Jinyu Group plans to add 10 million sets of semi-steel tires in 2012; In June 2012, Huadong Rubber Co., Ltd. will add another 12 million sets

　　In Q4 2010, rubber prices began to rise continuously, consolidating until mid-February 2011, reaching a peak of 43,000 yuan/ton, and only breaking below 30,000 yuan at the end of September. Nearly two-thirds of the rubber content in all-steel tires is natural rubber. Since October 2011, stimulated by favorable natural rubber prices, the operating rate of all-steel tires in the Dongying area started high during October. By early November, inventory pressure had already become apparent. During winter in North China, logistics and transportation decreased, and all-steel tire sales entered a low season. Entering December, factories began to limit all-steel tire production, and from December to mid-January, the operating rate of manufacturers in the Dongying area remained at around 40%

　　Zhongce, Triangle, Linglong, Huanan, and Double Star manufacturers stated that in 2012, they will simultaneously exert efforts in both overseas and domestic markets, with a focus on supporting series domestically. Currently, manufacturers are prepared to respond to the European tire labeling regulations in July 2012

2. Expansion of Foreign Brands' Production Capacity in China in Recent Years

　　During the 12th Five-Year Plan period, the trend of foreign brands shifting the focus of the world's tire industry to Asia will intensify competition in China's tire market

　　In early February 2012, Toyo Tire Zhucheng Co., Ltd. began production with a capacity of 400,000 sets/year, and has already started mass production

　　In December 2011, Toyo Rubber Industry Co., Ltd.'s 2 million sets/year tire factory in Zhangjiagang, Jiangsu was completed, mainly manufacturing tires for passenger cars and medium-duty trucks

　　During 2011, Bridgestone (Shenyang) Tire Co., Ltd. increased production of all-steel radial truck and bus tires by 180,000 sets/year. In July 2011, the Bridgestone (Tianjin) Eco-Friendly Tire Project commenced construction and is expected to be completed in July 2012, with a capacity of 9 million sets/year. In December 2011, Bridgestone Wuxi Phase III factory officially commenced production, and the daily production capacity of semi-steel tires at Bridgestone Wuxi factory will reach 13,200 units

　　Michelin and Double Coin have re-partnered. The production scale in Wuwei County, Anhui Province, will be over 6 million passenger car and light truck tires per year in the first phase. Within 5 to 8 years from the establishment date of the Sino-foreign joint venture, the final capacity will reach over 15 million passenger car and light truck tires per year, primarily producing mid-to-high-end light truck tires

II. Outlook for 2012

　　In the domestic tire market in 2012, regarding semi-steel tires, domestic semi-steel tires will impact the domestic mid-to-low-end tire market. Zhongce, Triangle, Linglong, Huanan, Double Star, and Guilin will increase their demand for high-quality rubber types such as whole latex, smoked sheet rubber, and SBR 1502 in tire raw material formulations. OEM enterprises in the Dongying area will also improve rubber material quality based on foreign order quality requirements. The performance of the domestic all-steel tire sales market in February will largely determine the sales volume of domestic all-steel tires in the first half of 2012

　　According to statistics from member enterprises of the China Rubber Industry Association, the increase in tire exports in 2011 was only 4.6%, and in 2012, there is a risk of stagnation. It is recommended that tire enterprises:

A. Increase the proportion of high value-added products such as green tires to stabilize China's tire market share in Europe and America;

B. Chinese enterprises should focus on exploring exports to developing economies, strengthen export efforts to countries with which China has signed free trade agreements, such as Africa, ASEAN, and India, and implement a "diversification" strategy to reduce the risk of overly concentrated tire export markets;