Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Tyres (APTY)
Automobiles
Positives from policy changes in the Chinese tire industry . China’s Ministry of
Industry and Information Technology announced a new policy for the tire industry in
the beginning of this year (CY2011), with the stated aim of preventing overcapacity in
the industry. Key features : (1) Permission for new capacity only for large projects; no
new building permits before 2012, (2) sets forth requirements for modern tire materials,
environmental constraints and waste tire disposal, and, (3) No tires to be sold without
appropriate certification. The policy if followed in letter and spirit could dramatically
change the Chinese tire industry (truck/bus tire segment) and in the long term curtail
exports of low priced/low quality tires, thereby improving prospects for the Indian tire
industry.
New tire industry policy of Chinese government – main features
The Chinese Ministry of Industry and Information Technology published a strategic policy
document in the beginning of CY2011, the aim of which is to prevent overcapacity in the Chinese
tire industry, making the industry more efficient and more quality conscious. We highlight the
main features:
The Chinese government will not issue building permits for creating new tire capacities till 2012.
Thereafter, permission would be given only to large projects which are defined as: any project
with capacity greater than 6 mn units per annum in the passenger car segment and a capacity
of more than 1.2 mn units per annum in the truck/bus tire segment
Accelerate the adoption of international standards in both new tires and the retreading sector.
To support this, the government aims to establish a national testing and evaluation center
Any tires exported from China must exceed the quality requirements of the destination market
and meet any relevant national standards and regulations
All new China-based projects must use energy saving equipment. For example: the document
specifies large capacity internal mixers as opposed to open mills. Also, the curing process needs
to be nitrogen powered. Also, there are limits on energy and water consumption in new
factories. All existing factories must meet these restrictions by 2012.
All tires must be certified as meeting minimum standards and no tires would be sold without
proper certification. A system of certification and approval will be introduced to ensure the
effective use of retreaded tires in China.
The new policy insists on an effective plan for the disposal of reject/used tires. It calls for tire
makers to participate in this process and develop means of recycling used tires.
Implications for tire companies in China
As per our discussion with the industry, Chinese companies are able to manufacture tires
(mostly truck/bus radials) at a much lower costs compared to Indian companies. In addition
to the export incentives provided by the government, other reasons for the competiveness
are:
Chinese manufactured tires score lower on quality parameters compared to similar tires
manufactured by Indian companies. Our view has been reinforced by our conversations
with various Indian truck operators who don’t use Chinese tires (despite of them being
available at discounts of ~40% after paying anti-dumping duties) on their trucks
operating on long routes on account of the fear of tires bursting mid-way (which means
substantial loss for them).
News articles suggest that Chinese tire companies engaged in the manufacturing of
truck/bus radials might not be adhering to quality norms. We would like to highlight the
recent case of tire recalls in China by Kumho tires. On March 15, 2011 China Central
Television (CCTV) revealed shoddy production processes at the company which was
found to be using excess amounts of recycled rubber that could lead to safety problems.
As a result, the company has lost a considerable market share in the Chinese market. For
more on this, do go to http://www.globaltimes.cn/NEWS/tabid/99/ID/673967/Kumhounder-
fire-again.aspx
We strongly believe that it is the lack of adherence to quality norms that allows China’s
companies to manufacture cheaper tires. The new norms therefore underpin our
confidence:
The pricing of passenger radials (PCRs) in the Chinese replacement market is almost at
par (or a little discount) with that in developed markets. Had it been possible to
manufacture tires cheaper in China, the passenger car market would have been at a
substantial discount to the developed markets, which is not the case.
Imports of Chinese passenger car radials have not been able to increase market share in
the domestic market despite the absence of anti dumping duties on the same. Also, most
of the imports of passenger radials are done by global majors (Michelin, Bridgestone etc)
who sell at a premium/parity to domestic prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Tyres (APTY)
Automobiles
Positives from policy changes in the Chinese tire industry . China’s Ministry of
Industry and Information Technology announced a new policy for the tire industry in
the beginning of this year (CY2011), with the stated aim of preventing overcapacity in
the industry. Key features : (1) Permission for new capacity only for large projects; no
new building permits before 2012, (2) sets forth requirements for modern tire materials,
environmental constraints and waste tire disposal, and, (3) No tires to be sold without
appropriate certification. The policy if followed in letter and spirit could dramatically
change the Chinese tire industry (truck/bus tire segment) and in the long term curtail
exports of low priced/low quality tires, thereby improving prospects for the Indian tire
industry.
New tire industry policy of Chinese government – main features
The Chinese Ministry of Industry and Information Technology published a strategic policy
document in the beginning of CY2011, the aim of which is to prevent overcapacity in the Chinese
tire industry, making the industry more efficient and more quality conscious. We highlight the
main features:
The Chinese government will not issue building permits for creating new tire capacities till 2012.
Thereafter, permission would be given only to large projects which are defined as: any project
with capacity greater than 6 mn units per annum in the passenger car segment and a capacity
of more than 1.2 mn units per annum in the truck/bus tire segment
Accelerate the adoption of international standards in both new tires and the retreading sector.
To support this, the government aims to establish a national testing and evaluation center
Any tires exported from China must exceed the quality requirements of the destination market
and meet any relevant national standards and regulations
All new China-based projects must use energy saving equipment. For example: the document
specifies large capacity internal mixers as opposed to open mills. Also, the curing process needs
to be nitrogen powered. Also, there are limits on energy and water consumption in new
factories. All existing factories must meet these restrictions by 2012.
All tires must be certified as meeting minimum standards and no tires would be sold without
proper certification. A system of certification and approval will be introduced to ensure the
effective use of retreaded tires in China.
The new policy insists on an effective plan for the disposal of reject/used tires. It calls for tire
makers to participate in this process and develop means of recycling used tires.
Implications for tire companies in China
As per our discussion with the industry, Chinese companies are able to manufacture tires
(mostly truck/bus radials) at a much lower costs compared to Indian companies. In addition
to the export incentives provided by the government, other reasons for the competiveness
are:
Chinese manufactured tires score lower on quality parameters compared to similar tires
manufactured by Indian companies. Our view has been reinforced by our conversations
with various Indian truck operators who don’t use Chinese tires (despite of them being
available at discounts of ~40% after paying anti-dumping duties) on their trucks
operating on long routes on account of the fear of tires bursting mid-way (which means
substantial loss for them).
News articles suggest that Chinese tire companies engaged in the manufacturing of
truck/bus radials might not be adhering to quality norms. We would like to highlight the
recent case of tire recalls in China by Kumho tires. On March 15, 2011 China Central
Television (CCTV) revealed shoddy production processes at the company which was
found to be using excess amounts of recycled rubber that could lead to safety problems.
As a result, the company has lost a considerable market share in the Chinese market. For
more on this, do go to http://www.globaltimes.cn/NEWS/tabid/99/ID/673967/Kumhounder-
fire-again.aspx
We strongly believe that it is the lack of adherence to quality norms that allows China’s
companies to manufacture cheaper tires. The new norms therefore underpin our
confidence:
The pricing of passenger radials (PCRs) in the Chinese replacement market is almost at
par (or a little discount) with that in developed markets. Had it been possible to
manufacture tires cheaper in China, the passenger car market would have been at a
substantial discount to the developed markets, which is not the case.
Imports of Chinese passenger car radials have not been able to increase market share in
the domestic market despite the absence of anti dumping duties on the same. Also, most
of the imports of passenger radials are done by global majors (Michelin, Bridgestone etc)
who sell at a premium/parity to domestic prices.
No comments:
Post a Comment