News You Can Use

RTA NEWS YOU CAN USE
September 8, 2015

We received the following VERY INTERESTING email today from RTA member Intercontinental Marketing Corporation and it is printed below with permission. A sincere thank you to George Thaler for granting permission for us to share his email with you as we believe it is extremely interesting and well worth reading.

Harvey,
 
Thank you for sharing the recent conversations regarding Chinese truck tires.  Many of the emails you have shared seem to focus on a premise that cheap Chinese truck tires will continue to be available in the USA and we have to learn how to deal with it. I believe that premise may not hold true in the future.
 
New Chinese truck tires are extremely cheap today BUT forever is a very long time.  Especially in current economic terms. The Chinese economy (and tire production) is experiencing some very rapid changes.  These changes are setting up the future market for potential volatility.  
 
Consider the following:
 
Chinese medium truck tire production is currently estimated to be over capacity by 20%-25%.

According to the China Petroleum and Chemical Industry Federation, the more than 300 tire makers in China are currently operating at 70% of capacity.
(see Wall Street Journal article)
 
What caused this?  

In 2009 the Chinese government (along with many other governments across the globe) attempted to stimulate their economies by easing credit conditions.  
(see Reuters)

In China it worked, at least temporarily. Tire manufactures, and many other commodity producers in China, invested heavily in new production plants and infrastructure. This temporarily slowed the deceleration of their growing economy to around 7% but it also created a mismatch of production and demand.
(see New York Times)
 
Most Chinese tire producers, especially private ones, are highly leveraged.
As many business owners know, when one is highly leveraged, even a small hiccup in the market place can be fatal.  It can also set off a chain of consequences.
 
A perfect example of this is the Deruiao factory based out Shandong, China.  According to Tire Business:

In 2013 Deruiao had a revenue approaching 1 billion dollars. They were ranked 35th in terms of largest tire manufactures.  They recently declared bankruptcy (and had a $131 million guarantee provided to them in 2010 from Chinese companies like Qingdao Doublestar, Tianjin Saixiang Technology, Mesnac and Greatoo).  
(see Tire Business)
 
One theory holds that the bankruptcy of the Deruiao factory is just the beginning.  

I believe it is possible, if not inevitable, the Chinese tire market will swing from a surplus of cheap Chinese tires to many Chinese factories disappearing and / or prices increasing.

If this holds true, it would create a surge in demand for retreads (to make up for the lack of available Chinese tires).

These are the theories of a casings importer, so I am biased and not an insider or economist. There are obviously many other factors at play regarding this topic.  That said, let us be cautious as we adapt to the changing global markets.  

George Thaler
IMC
1516 West Lake Street
Suite 224
Minneapolis MN 55408 USA
Tel:  952-465-2339
Fax:  952-435-3401
george@imctrade.com

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THOUGHT FOR THE DAY
"When the winds of change blow,
some people build walls,
others build windmills "
~ Chinese Proverb