“The era of fast development in rubber industry has ended. The development of rubber industry went into a new stage featured by step-down growth from 2012, showing a new normal development trend and characteristics.” In the World Rubber Forum 2014 & Information Conference held on October 15, Deng Yali, the president of China Rubber Industry Association, said that rubber industry shall actively think about the direction and idea of transformation in development mode, structural adjustment, reform and innovation under the “new normal situation” and make the corresponding adjustment to adapt to the changes of operation and development environment caused by the “new current situation”.
Step-down Growth & Falling Benefit as Operating Performance of the “New Normal Situation”
The trend of step-down growth of the whole industry can be obviously shown in the statistics on output value and sales revenue growth of the industry by CRIA. The two indexes sharply decreased to 0.01% and 1.89% in 2012 from 16.97% and 17.5% in 2011, which were 3.8% and 2.13% in 2013 and 3.37% and 0.09% from January to August 2014 with the growth decreasing by 1.52% and 2.22% compared with that in the first quarter and 1.06% and 1.65% compared with that in the same period of last year. The output of tires was 270 million units with the year-on-year growth of 11.3%; and the profit of the industry increased by 7.95% with the growth decrease of 15%. Among them, the profit of tires increased by 3.8% with the year-on-year growth decrease of 26.6%.
In Deng Yali’s speech, the “new normal situation” of rubber industry is shown on 4 aspects: Firstly, the economic growth of the industry is falling, which turns to the present one-digit growth below 5% for nearly 3 years from the high-speed growth around 20% in the past. Secondly, structural adjustment becomes a main task in the development of the industry. Product structure, raw material structure and market structure shall be adjusted, optimized and upgraded continually. Thirdly, the momentum for development turns to innovation from element and investment; and quantitative growth changes to quality growth, service growth and “green” growth. Fourthly, some problems hidden by the high-speed development are heavily exposed in this period and some uncertain risks become obvious. The development is confronted with both new challenges and opportunities.
Deng Yali said that the hidden fact in quantitative increase but price decrease reflected the accumulative contradiction collision in the changes of the development environment and development conditions and the rapid growth of the industry during the past years. At present, both the domestic and overseas economy step into the profound adjustment period with flagging demand for products in the market, price fluctuation of rubber raw materials at a low level, increasing uncertainty and growing costs of all kinds of elements. With regard to rubber products such as tires, there are acute structure surplus, serve homogeneous competition and frequent price war in a variety of forms.
“The production capacity of Chinese tires has acquired certain competitiveness. At present, many enterprises of top 10 in China can be listed in top 10 in the world regarding production capacity. However, due to severe price war in domestic market with harsh social competition, most Chinese brothers are competing with each other in the international market.” Wang Feng, the executive chairman of CRIA Presidium & president of Aeolus Tire Co., Ltd., said.
Liu Haiqing, the council president of CRIA Rubber Hoses & Belts Branch & general manager of Qingdao Rubber Six Conveyor Belt Co., Ltd., told the reporter that the rubber hoses & belts industry presented fast development in the past 5 years. At present, there are more than 370 registered member enterprises with production capacity accounting for 70% of China. However, big and small nonmember enterprises have exceeded 1000. Because of the step-down development of supporting industries such as steel and coal, 90% of the required conveyor orders are purchased by bidding and price comparison. Because conveyor enterprises need to release the new production capacity, they compete with each other by reducing the price to get more orders with the faltering demand, which becomes more and more serious. In the first half of this year, the difference between the highest and lowest price of the big enterprises in the industry exceeded 30%.
The matching raw and auxiliary material industry and the downstream tire distribution industry are also limited to the growth downturn of the tire and product industries. “While meeting the demand of tire enterprises and increasing the apparent availability of carbon black, we can’t make the newly increased production and operation costs reflected in the slump sales price of carbon black, and differentiate the price by providing different technical services and quality guarantees, which lead to the sales price of some carbon black enterprises less than the cost for a long time, making the industry profitability subject to nearly zero. It is difficult for the whole industry to survive and maintain the current situation.” Liu Jiangshan, the council president of CRIA Carbon Black Branch & the president of Longxing Chemical Stock Co., Ltd., said helplessly.
“Through communications with bosses in the industry, this year is generally considered as the most difficult year to do tire business, which is much harder than 2008 when the financial crisis occurred.” Bao Renqiao, the president of Wuhan Tianli Tire Co., Ltd., introduced that the increasing storage pressure came the first. The sales amount of this company was RMB 800 million yuan~RMB 900 yuan, but the storage was valued at RMB 100 million yuan~RMB 200 million yuan. While storage is increasing, the cost of tires is reducing continuously, which leads to sharp decrease of profit. “This not only affects the economic benefit of the enterprises, but also cracks bosses’ confidence in proceeding to do this business. Therefore, we call on the upstream manufacturers to relieve the situation and CRIA to give assistance for going through the crisis together.”
In Deng Yali’s opinion, the economic situation of rubber industry in the next months will follow the trend in the first half year. As for the whole year, it will keep the slight growth but stay in the situation of quantitative increase but price decrease. Enterprises will be subject to bigger production and operation risks and the operation situation of the industry will show severity on the whole. However, both the whole industry and the enterprises pay high attention to the contradictions and difficulties in the economic operation and make overall deep analysis on cost, market, production and the like, grasp crucial points and vulnerable kinks, and give active response to prevent and solve the production and operation risks so as to ensure the accomplishment of the main targets of the economic operation in the whole year.
Getting Rid of High Growth, the Key to Adapt to New Normal Situation
“The new normal situation means that rubber industry will keep the intermediate-speed growth for a long period. As a result, the market competition will be fiercer, the corporate differentiation process will accelerate, the resource allocation in the market will concentrate on advantageous enterprises, and strong competitive enterprises or business groups will come into being sooner. In the next 5~10 years, China’s rubber industry will make new layout with survival of the fittest.” Deng Yali indicated.
“The low price and the poor whole competitiveness of Chinese tires are caused by too much notice on the construction of production capacity.” Wang Feng said after analysis.
“During the past 30 years’ development, enterprises didn’t really develop high-tech products in the high-speed growth of GDP. They only followed and imitated others. Most of them focused on products and few paid attention to basic research. They expanded the production capacity as soon as they earned the profits. However, once the overseas market was threatened, trade protection measures would be taken to set up technical barriers and improve the technical threshold.” Yuan Zhongxue, the standing deputy director of National Engineering Research Center for Rubber and Tire and the president of MESNAC expressed his opinion.
“It is urgent to improve the industrial concentration in conveyor industry to build enterprises on a scale of more than RMB 2 billion yuan and even RMB 3 billion yuan. By then, such competitive situation will surely disappear. We shall regulate the market competition and product standard and participate in the international competition via big group companies. Of course, the increase of concentration is not simply a scale problem, and it also includes the improvement of brand competition, technical innovation ability, equipment level, management method, etc.” Liu Haiqing said.
Transformation & Innovation, the Only Road of the Industrial Development under “New Normal Situation”
Yuan Zhongxue thought, “Study and imitation have come to the end in the present China. Both the population and resource bonus have been almost consumed and the product cost has dropped to the bottom. The next round of development in China’s tire industry must be focused on joint coordination with research institutions on basic research.”
“Can quality be guaranteed? Yes! But can it be kept? With regard to R&D and technical innovation, big overseas companies constantly come up with designs with consumption guidance and selling points, but we only imitate. Some enterprises are on the way of “OEM” and “cooperation with others”. How long will this stage last that we can have our proprietary brands and construct our own channels? With the internationalization of enterprises, where are our high-end talents?” Wang Feng asked the industry and enterprises about the bottlenecks and weaknesses in tire industry.
He suggested that tire enterprises shall improve the innovation capacity, strengthen research and development, promote product transformation and upgrading, boost the development of standard products towards high-end products, get rid of reliance on OEM, accumulate and improve the high-end brand effect, improve the product image of “Made in China”, spread to matching market from replacement market and finally realize the original matching of high-end products to build the world-class tire enterprises.
“The industry will take introduction and regulation measures, develop towards technical innovation, promote industrial upgrading by technical innovation and compete with foreign enterprises on the basis of the current development trend of conveyor industry. In the first 7 months, Anhui Zhongyi Rubber Belts Co., Ltd. applied for 20 patents, but there are very few enterprises like Zhongyi.” Liu Haiqing indicated.
As introduced by Wang Weidong, the general manager of Shandong Best Chemical Co., Ltd., this company has been engaged in the R&D of wearproof carbon black with high specific surface area and carbon black used for green tires with high rear resistance and low heating tread, being a leader of new product R&D of carbon black with gradually increasing sales volume. In the general slump situation of carbon black industry, we have walked out a distinctive way.
In Deng Yali’s opinion, considering the situation of rubber industry in the recent two years, even though the economic growth slowed down to a great extent, the quality and efficiency of economic operation improved greatly. “Under the ‘new normal situation’ featured by step-down growth, rising cost, intensified international competition, obvious technical innovation ability and stronger market mechanism, how to achieve the sustainable and healthy development lies in changing factor-driven and investment-driven to innovation-driven; changing quantitative increase to quality increase, service increase and ‘green’ increase, and adjusting product structure, raw material structure and market structure.” Deng Yali said in the end.