China Prefers “Green” Rubber

By Tongyan

Though natural rubber prices failed to exceed RMB25 000/t in 2012, China’s rubber industry saw a 35% YOY increase in profit. In the first 11 months of 2012, the sales revenue of the industry totaled RMB761.47 billion, up 15.4% YOY; 811 million tires were made, up 4% YOY (including 418 million radial tires, up 10.8% YOY, and 18.26 million motorcycle tires).

1. Previous Review

1) “Green” product is the development trend.
In the past year, the rubber industry made progress in enhancing green materials, improving technologies, making use of advanced equipment, formulating standards and evaluation methods, disposing of and recycling used products, etc. In more detail:
● Yueyang Baling Petrochemical Co., Ltd launched SEPS as “upgraded SIS,” making product applications wider, and conditions for use stricter.
● PetroChina Dushanzi Petrochemical Company launched a new product, SSBR, which reduces the rolling resistance of tires.
● A project to optimize energy use during the tire production process, conducted by Double Coin Group Rugao Tyres Co., Ltd, was put into production, with recycling rates of sewage and steam reaching 95% and 100%, respectively, and the energy saving rate exceeding 37%.
● Tianjin Saixiang Technology Co., Ltd developed the world’s first single stage all-steel giant-engineering radial tire molding machine (49/51 inches), with intellectual property rights.
● Benefiting from a new spiral cooling device with a national invention patent, some extrusion production lines of  partially finished rubber products realized high efficiency with low energy consumption.
● Rubber enterprises solved the problem of secondary pollution during the production process for reclaiming rubber by using continuous atmospheric desulphurization technology.
● A test base for Maxxis tires, located in Kunshan, was put into use by Cheng Shin Rubber Ind. Co., Ltd.
● Two industry organizations – Green Tire Collaborative Innovation Center and Intelligent Tire Manufacturing Technology Innovation Union – were established.
As sound safeguards, the abovementioned achievements will significantly promote green rubber production.
2) Capacity will continue to expand.
● Investing USD950 million, Hankook Tire Co., Ltd established its third factory in China. Covering nearly 55 hectares and located in Chongqing, the factory boasts a daily capacity of 4 500 all-steel radial tires and 30 000 semi-steel radial tires.
● Hebei Yifeng Tire Co., Ltd constructed a semi-steel radial tire project in Gucheng County, Hebei Province. The project is designed to produce 2.1 million car radial tires, and 900 000 light-truck radial tires.
● Sichuan Haida Rubber Group Co., Ltd activated the technological upgrade, which will enable the manufacture of 7 million units of high-quality, low-rolling resistance tires in Jianyang, Sichuan.
● The 50 000 unit/a all-steel engineering radial tire project of Xinjiang Kunlun Tire Co., Ltd was put into operation.
● Costing RMB1.05 billion, a 5 million unit/a high-quality passenger radial tire production line, constructed by Aeolux Tyre Co., Ltd, was put into operation.
● Through an Anhui PCR project, which was put into production, Double Coin Group returned to the market of semi-steel radial tires. The plant is expected to produce 1.1 million car tires, totaling RMB350 million.
● Shandong Wanshine Tire Co., Ltd started to construct the 2.4 million unit/a all-steel radial truck tire production line in 2011. The first stage (800 000 unit/a) was put into production.
● Guizhou Tyre Co., Ltd issued A shares to raise funds of up to RMB1.6 billion, which was used in a 260 000 unit/a all-steel engineering radial tire project.
● In Wucheng County, Shandong Province, Shandong Linglong Rubber Co., Ltd constructed two new production lines – 10 million units/a of semi-steel radial tires, and 2 million units/a of all-steel radial truck tires.
● Cheng Shin Rubber (Xiamen) Ind. Ltd is constructing a Jimei factory, with a design capacity of 26 000 semi-steel radial tires daily and expected annual output value of RMB5 billion.
● Goodyear China was relocated to Pulandian of Dalian, expanding its annual capacity to 10.5 million units.
● Costing EUR133 million, the 8.5 million unit/a radial tire project of Continental Tires (Hefei) Co., Ltd was activated in 2012.
● Sumitomo Rubber Industries, Ltd established its second factory in China mainly to produce radial automobile tires. The first stage cost around USD300 million, and covers 40 hectares.
● Kenda Tire Co., Ltd intends to spend USD333 million in establishing a tire factory in Huizhou of Guangdong. The new plant will be engaged mainly in producing tires used in cars, light trucks, trailers and motorcycles.
Expanding capacity is a double-edged sword. On the one hand, it can be good for improving the scale, technologies and competitiveness of tire enterprises; on the other hand, it adds operational pressures to China’s tire industry, which is already dealing with overcapacity.
3) Trade disputes still exist and the global investment pattern is shifting
The “Sino-US tire tariff case,” which brought great losses to China’s tire exporters, has come to a conclusion. But trade disputes between the two countries have never been eased. In those years, countries like Argentina, Thailand, Brazil, Turkey and India imposed anti-dumping duties on China’s perduren conveyor belts, motorcycle tubes and tires, cycle tires, white carbon black, footwear and tire vulcanizers, and India also imposed special three-year safeguard tariffs on carbon black products imported from China, all of which limit China’s rubber sales volume. Furthermore, due to investment diversion and frequent M&A, the structure of the international rubber industry is changing. Developed countries in Europe and North America propose the idea of “reindustrialization” to promote their manufacturing industries. As sources of raw materials, Latin America and Southeast Asia might be “new favorites” of investors.
   After investing in constructing India Madras Tire Mold Industry Base, Guangdong Greatoo Molds Inc is entering the European market through indirect equity participation in OPS-INGERSOLL. Funkenerosion GmbH; Anhui Zhongding Holding (Group) Co., Ltd purchased American Qianxi Industry Co., Ltd; the National Development and Reform Commission approved Guangdong Guangken Rubber Group Co., Ltd’s conduct of a 40 000-hectare rubber project in Sarawak, Malaysia, and approved Hangzhou Zhongce Rubber Co., Ltd’s construction of a tire project in Thailand. Traditional import and export trade is challenged.

2. Remarks on Hot Spots

1) Is the “stabilization fund” capable of ensuring stable prices?
The stabilization fund, which was initiated by rubber enterprises, is playing an active role. It suggests that the industry has abandoned traditional measures such as reducing tariffs, dumping reserved products and joint purchasing, but instead makes realistic strategies to stabilize rubber prices. However, considering that the Major Rubber Producer Union failed to control price ups and downs, the fund, with participants including only rubber consumers, can hardly fulfill its responsibility. To keep stable prices, all involved parties like producers, consumers, traders, securities companies and futures companies should join together, sharing both interests and risks. Through 50% equity participation, China Hainan Rubber Industry Group Co., Ltd cooperates with ChemChina, linking upstream and downstream enterprises.
2) Green consumption is indispensable.
The EU Tire Labeling Act took effect in November 2012. China’s industrialization plan and relevant criteria on green tires will also be finished soon. As for green manufacturing and green consumption, they are interrelated – green manufacturing is the foundation of green consumption, which in turn will promote the former. To propel both green manufacturing and consumption, the Chinese government has to improve its policies, boost the strength of propaganda, standardize usage specifications, etc. But green consumption should be motivated according to current manufacturing levels and purchasing power to avoid unrealistic prices.

Prospect in 2013

Facing many uncertainties from home and abroad, China’s rubber industry is unlikely to grow rapidly in 2013, with sales revenue reaching nearly RMB1 trillion, and most investment used in technology upgrades and construction of projects already started. Prices will fluctuate reasonably, but profits might decline amid possible overcapacity and severe competition. With the “Sino-US tire tariff case” coming to an end, export to America is expected to rebound. According to the author, diversified operation is a realistic option for China’s rubber industry, which should take every opportunity to improve technologies – the most important way to enhance competitiveness. But at present, adjustments in structure and mode are also necessary.