In H1 of 2022, China’s semi-steel tire industry experienced a Y-O-Y decline in supply as a result of decreased production time and production intensity. The demand decreased Y-O-Y as a result of the stagnant domestic market demand in China and the sluggish export growth at the same time. Due to the predicted production guarantee and demand increase, which is more important to pay attention to, the industry’s supply and demand are forecast to improve in H2 of 2022.

1 Overview: semi-steel tire supply and demand decreased in H1

H1, 2022 Semi-Steel Tire Industry Indicators

Source: SCI and GACC

In H1 of 2022, China’s semi-steel tire market remained flat with weak growth. As for the supply side, these indicators above all showed a Y-O-Y decline, and the total supply volume decreased from last year. In H1 of 2022, the output of semi-steel tires decreased by 4.49% Y-O-Y, and the monthly average operating rate decreased by 4.8% from last year. As for the demand side, sales in the export market and the OE tire market achieved Y-O-Y growth, but dragged by the large decline in the replacement tire market, the total demand volume also decreased from last year. SCI learned that from January to May 2022, the total demand volume was 203 million pieces, which decreased by 5.14% from 214 million pieces in the same period last year.

1.1 Supply

Operating rate decreased Y-O-Y

SCI learned that in H1 of 2022, the operating rate of semi-steel tires showed an N-shaped trend and reached the highest point in March, and then the operating rate went all the way down. In June, the operating rate ushered in new growth after excluding the impact of holidays.

First, there were holidays like Qingming Festival, May Day and Dragon Boat Festival in H1 of 2022, and producers stopped production for maintenance during these holidays, so the production time decreased, which dragged down the operating rate. Second, the mobility of non-local personnel weakened, so many producers’ staffing was not as good as that in previous years, especially in Shandong, so the operating rate decreased. Third, the cost of feedstock, logistics and transportation and energy consumption increased, so producers had more strict pre-production control.

Semi-steel tire inventory decreased

SCI learned that the monthly inventory of China’s domestic semi-steel tires showed a wave-like movement. In H1 of 2022, the days of inventory were maintained within 50, with slight adjustments. After the Spring Festival, the inventory picked up and met the highest point of H1 in April. Then producers reduced the inventory, and the inventory started to be lower than that of the same period of last year.

1.2 Demand

Export growth failed to make up for the tepid domestic market demand

Semi-Steel Tire Three Major Sales Markets Proportion

Source: SCI

As for the semi-steel tire market sales in recent years, the export market made the most contribution, and its contribution showed an upward trend, increasing from 42% to 47% from January to May 2022. At the same time, the proportion of the replacement tire market dropped significantly from 37% to 33%. In comparison, the proportion of the OE tire market changed the least, maintaining a market share of about 20% for many years.

From January to May 2022, China’s semi-steel tire sales volume was 203 million pieces, down 11 million pieces or 5.14% Y-O-Y.

It can be seen that although the increase in the export market eased the decline in the total sales volume of the semi-steel tire market, it did not completely reverse the overall downward trend, which was more affected by the weak domestic market in the early stage.

Export achieved growth

According to GACC, from January to May, China’s semi-steel tire (40111000) export volume was 948.42kt, up 1.27% Y-O-Y.

The favorable performance of China’s tire exports was attributed to a few factors. First, stable corporation with foreign markets sustained. Foreign markets are still highly dependent on China’s tires, and the insufficient capacity in foreign markets guaranteed continuity of China’s tire export. Second, temporary decline in ocean freight rates stimulated the intensive tire exports in H1 of 2022, especially in April and May. Third, the adjustment of the RMB exchange rate was beneficial to the export sales. Therefore, the export market achieved a new rally supported by multiple positive factors.

China’s domestic market went lower compared with last year

It can be seen that China’s semi-steel tire market fluctuated downwards after the Spring Festival this year. Sales possibilities were stranded in the early stages due to the unfavorable sales environment in China’s domestic market. Despite some gain in Q2, which was mostly attributable to the recovery of OE tires, cautious travel made it difficult to match past years’ sales performance in the replacement market.

SCI learned that from January to May 2022, the total sales volume in China’s domestic market was 108 million pieces, which decreased by 11% from 121 million pieces last year.

2 Forecast: robust supply and demand are to be anticipated

H2, 2022 Supply Forecast

H2, 2022 Demand Forecast

Overall, compared to H1 of 2022, China’s semi-steel tire industry is expected to perform strongly in terms of supply and demand in H2. Demand growth is anticipated to outpace supply growth with stable sales in the export market.

In H2 of 2022, under the expectation of stronger production guarantee, the number of production days may increase, which will provide support for domestic semi-steel tire output. In addition, the pre-production cost is expected to be lower than that in H1 of 2022, which is anticipated to support tire producers’ operating rate. However, producers are still cautious in controlling inventory, and more adjustment to operating rate is mostly based on lower inventory. SCI predicts that in H2 of 2022, the total output of semi-steel tires may achieve a Y-O-Y increase of 2%-5%.

Additionally, the domestic semi-steel tire market will experience more favorable conditions as a result of the release of new policies in the domestic passenger car market, the improvement of the stability of the domestic travel environment, and the ongoing support of the large passenger car market at the early stage. The consumption of tires is expected to improve simultaneously. Particularly, the passenger car market is expanding quickly, and the rise in OE tires may stand out. A specific focus should still be paid to the export market’s volatility, particularly the unpredictability of the policy regulations of the major export cooperation countries, which could have a large impact on export in H2 of 2022. Therefore, the export market registers a stable performance with good momentum, but at the same time, it is suggested to prepare for possible new regulations. Based on the different operating changes in the three major markets, SCI predicts the sales of semi-steel tires in H2 as follows. The increase in the domestic market of semi-steel tires in H2 may be better than the export market, and the sales volume in the domestic market is expected to achieve a Y-O-Y increase of more than 5%. The export market is more likely to remain stable, and the total volume may fluctuate within the range of -2%-2% Y-O-Y.