Price Appreciation of Tire Will Follow Price Increase of Natural Rubber

Price Appreciation of Tire Will Follow Price Increase of Natural Rubber

Southeast Asia is the main region of the natural rubber production in the world. Influenced by La Nina, the major producing countries of the natural rubber in Asia suffered from the flood. Meanwhile, there were robust demands in the natural rubber market of China and other countries. All these led to a 20% price increase of the natural rubber. In the first three quarters of 2010, the production of tires amounted to 582.55 million, with a 24% increase YOY. According to the statistics, the price of the natural rubber in recent two years has trebled. After a 65% price increase of the natural rubber in 2010, it is predicted that the cost of rubber products such as tires, gloves and condoms will increase further in the same year. The price of the synthetic rubber rises following the price increase of the natural rubber. As a result, the production cost of the rubber products increases drastically.

At present, because of the continuing price increase of the rubber, manufacturers of the rubber products raise their prices, or face the tremendous pressure of a fall in profits. Many large tire enterprises, including Bridgestone Corporation, Michelin Group, Goodyear and Continental, have raised their prices by 5% to 15% in 2010. Some enterprises have announced to carry out another round of price increase.

Since September 2010, the price of the natural rubber has kept rising. In the early November 2010, the price has reached nearly CNY 32,000 per ton, as the lead among the staple products. In addition to the supply-demand gap, the main reason of the drastically price rise of natural rubber on Chinese market recently is that a large amount of capital has been invested into the natural rubber market since September 2010 and the price has been raised artificially against the background of the urgent need. With the continuing price rise of natural rubber, raising the price of tires in the market is eagerly expected. Therefore, there is an increasing demand of taking delivery of the goods, and the production of the tire enterprises increases with low profits, which both lead to a further increase of the demand of the natural rubber. As a result, the price of natural rubber goes up.

In order to deal with the pressure caused by price rise of the natural rubber, many Chinese tire enterprises decide to relieve the strain raised by the rising price of the raw materials by increasing the tire prices. When the price of the natural rubber went up in April 2010, the Chinese government released 200,000 tons of the reserve rubber, so that the price was stabilized. Many tire enterprises in China have submitted their application for the release to the government, looking forward to the quick release of the reserve rubber from the government. According to the analysis of China Research and Intelligence, even if Chinese government can release the reserve rubber to the market, the effect is limited.

As the world economy begins to recover from the international financial crisis, the demand of the original gum of the American, Japanese, and Russian auto industry is increasing. Against the background, the global supply-demand pressure is artificially intensified.

Natural rubber is the main raw material of tire production, accounting for 50% of the production cost. Since 2010, due to a large increase of the production cost, the profits of Chinese rubber enterprises have dropped. Meanwhile, the development of the Chinese rubber industry is always bothered by China's 20% increase of the import tax of the natural rubber. Currently, the annual production of made-in-China natural rubber is always around 600,000 tons. 70% of the domestic natural rubber market depends on the foreign markets. Influenced by the sustaining increase of the raw materials, Chinese tire enterprises will be forced to raise tire prices to avoid the loss.

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