[semi-annual report] Raw material price rising pressure relieves tire industry's performance is expected to pick up in the second half of the year

The price of raw materials has risen sharply, shipping has been blocked, and the performance of the tire industry in the first half of 2021 is generally under pressure, but the pace of expansion at the head of the industry continues and the concentration of the industry is further enhanced.

From exquisite tires, race wheel tires and other industry insiders believe that the tense situation of shipping "one box is difficult to get" will be alleviated. The person in charge of the exquisite tire stressed that raw material prices are expected to fluctuate downwards in the second half of the year, but the range will not be too large, and the cost pressure of the industry will be alleviated. At the same time, the overseas market continues to improve, coupled with the advent of the domestic passenger car sales season, the semi-steel tire market is improving, the all-steel tire market still has some pressure.

Increase in income without profit in the first half of the year

Data show that in the first half of this year, due to the strong demand, the revenue of nine listed companies in the tire industry increased year-on-year. Among them, General Motors (601500.SH), which has the highest growth rate, achieved revenue of 2.16 billion yuan in the first half of the year, up 56.68% from the same period last year; and Linglong Tire, with the highest revenue, achieved revenue of 10 billion yuan in the first half, up 21.77% from the same period last year. Revenue from Guizhou tires (000589.SZ) and Qingdao double stars (000599.SZ) grew 12 per cent year-on-year, the lowest of the nine listed companies.

But in terms of net profit, only three companies achieved year-on-year growth, with the biggest increase of 10.77 per cent for racing tyres, 3.14 per cent for 002984.SZ and 2.86 per cent for GM shares.

Five companies in the industry suffered a decline in the first half of the year, with 600469.SH 's net profit falling the most, at 71 per cent, compared with the same period last year. Qingdao double Star continued to lose money in the first half of the year, but the extent of the loss decreased.

The sharp rise in raw material prices is the main reason why the tire industry did not increase profits in the first half of the year. According to the introduction of exquisite tires, since the second quarter of this year, the overall purchase prices of the four main raw materials, natural rubber, synthetic rubber, carbon black and steel cord, have increased by 39% compared with the same period last year, and by 9.68% compared with the same period last year.

In addition, rising shipping prices and the difficulty of finding one case is another drag on the tire industry. A tire trader told the Financial Associated Press that previously tyre export transactions were mainly borne by customers for FOB, freight, but as shipping prices continued to rise, racing wheel tires, exquisite tires and other companies began to bear part of the freight costs, which dragged down the performance to a certain extent.

In the domestic market, domestic tire demand was relatively weak in the second quarter, and dealer inventory increased. Data show that as of the end of June, the inventory of domestic tire enterprises reached a three-year high, the pressure is on the high side.

From the product sales price, because the average price of natural rubber in the second quarter is lower than that in the first quarter, it is difficult for domestic head tire enterprises to keep up with the rising prices of overseas tire enterprises, and some tire enterprises even cut product prices. The price of Linglong tire fell 0.86% month-on-month in the second quarter, down 3.47% from the same period last year.

With regard to the trend in the second half of the year, many people in the industry, such as exquisite tires and race wheel tires, believe that the tension of "one box is difficult to obtain" by sea transportation will be alleviated, but shipping prices will remain high, and individual routes will rise somewhat; raw material prices will be adjusted back, but by a small margin.

The head enterprise continues to expand its production capacity.

The operating pressure in the first half of the year did not stop the international layout of the leading enterprises in the industry.

Racing wheel tires added three new investment projects in the first half of the year, and the production capacity increased by 14.85 million after completion. Among them, the racing wheel (Weifang) Tire Co., Ltd., which has a total investment of more than 900 million yuan, "annual production of 1.2 million high steel radial tires and 6 million semi-steel radial tires" has completed 44.5% of the investment progress. The Cambodian factory's "annual production of 9 million semi-steel radial tires" is accelerating.

The pace of expansion of Linglong tires seems to be even greater. Domestically, the company's Jingmen and Changchun factories have planned production capacity of more than 14 million sets of high-performance radial tires, which are expected to reach production in 2023 and 2025 respectively. The Tongchuan plant with a planned capacity of 15.2 million sets of high-performance radial tires and 500000 sets of refurbished tires is expected to be completed in 2028. On August 26th, the company announced again that it would invest 5.2 billion yuan to build the seventh domestic production base in Hefei, Anhui Province.

Overseas, Thailand's Linglong annual production capacity of 17 million sets of high-performance radial tire factory has been put into production; Europe Linglong (Serbia) annual production planning of 13.62 million sets of high-performance radial tire, all expected to reach production by 2025; the company also plans to build three more tire plants overseas, which are currently being selected.

Qingdao double Star (000599.SZ) also mentioned in its semi-annual report of 2021 that the company will accelerate the implementation of its new overseas strategy and achieve rapid development in the second half of the year.

Analysts believe that through the global layout, domestic tire head enterprises will better meet the market demand at home and abroad, further enhance their ability to deal with international trade barriers, and further improve the company's profitability and sustainable development ability.