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Tire makers see thin margins as costs soar

By LI FANGFANG (China Daily)
Updated: 2010-04-01 10:31
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BEIJING: As rubber prices continued to rise and Chinese tire exports are hit by high US tariffs, tire makers in China have started to hike prices to offset increasing costs.

This week, natural raw rubber prices reached 24,800 yuan ($3,633) per ton, more than double the price of per ton at the beginning of last year.

Adding insult to injury, the serious drought in Yunnan province, which slashed in half output from China's major rubber production base, is also worsening rubber industry headaches.

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During the past two weeks alone, Yunnan's natural rubber prices were inflated from 23,000 yuan to 25,000 yuan per ton.

The reduction in supply combined with rising rubber prices translates into raw material cost pressures for the downstream tire industry.

Retail tire prices across China have recently jumped by up to 10 percent per unit.

Hangzhou Zhongce Rubber Co, the largest rubber maker in China, recently raised its tire prices by 5 percent due to rising rubber and oil costs, according to the company.

Its competitors South China Tire & Rubber Co Ltd and Qingdao Double Star Tire Co Ltd followed suit, as the two manufacturers raised prices by 5 percent and 10 percent respectively.

For the second time this year, Shandong Linglong Group marked up prices by 6 percent after its first appreciation of 5 percent before the Spring Festival.

International brands like Bridgestone and Yokohama also introduced surcharges of around 10 percent on retail tire prices recently in China.

French tire maker Michelin told China Daily on Wednesday that it was they are also considering a price hike within a reasonable margin.

Zheng Wenrong, secretary -general of China Natural Rubber Association, agreed that industry demand coupled with a drop in natural rubber production led to the price hikes.

However, according to Chen Aihua, an analyst with Guosen Securities, the modest price increases will not cover manufacturers' huge expenditures for skyrocketing rubber.

"They are facing a hard time this year."

With 40 percent of sales coming from overseas and one third of exports going to the United States, China's tire makers found themselves in hot water as some countries - led by the US - imposed higher tariffs on Chinese tire imports since last year.

The move was considered trade protectionism by the Chinese government as well some industry and trade experts.

Recent Customs statistics show that January-February 2010 import volume for natural rubber in Tianjin Port was 9,800 tons, down 13.2 percent from the same period last year.

Analysts said that the decline of rubber imports was led by a drop in tire exports.