Trojan Limited at The China International Tire Expo Shanghai 2019August 18, 2020
Why the Ocean Freight is Increasing?December 16, 2020
Numerous announcements on tire price increasing from many factories followed by recent price-rising trend of steel cords and carbon black has inevitably dragged all of us into a question - Are tyre prices really going to increase?
The manufacturing cost is determined by the raw material price, and the tyre price is swayed by the supply and demand in the market. On the strength of these two points, we would like to give the following analyses on the above question.
Raw Material Price:
The whole world’s economy has been hit extremely hard by COVID-19 in 2020. Many countries in the northern hemisphere have been suffering from the second wave of infection and the third outbreak period. We always hope for the best even in harsh reality. With more news on COVID-19 vaccine rollout and coming into use, the world major economic research organizations are optimistic about the economic growth in 2021, the expectation on major economies’ growth next year is very high, which has stirred the future market of bulk commodity. The price of crude oil, natural gas, steel, cooper, natural rubber has been dramatically increasing, on account of which the price of petrochemicals has been surging a lot. The reduced world’s productivity under the epidemic and the anticipation on the recovery of future economy affects the prices of many commodities in spot market, which has forced the price of manufactured goods into a rising trend.
TBR – A Barometer:
TBR (Truck and Bus Radial) tyre is a barometer of the economy, the demand is not going to rise or even reduce in the current sluggish economic scenario. Relatively speaking, tire factories outside of China have very low yield in the past 6 months, which has left a portion of unmet demands behind. The repeated epidemic situation has brought Chinese tyre brands a number of orders which used to go to foreign brands.
Chinese tire factories with abundant production capacity can easily take in these orders without any pressure to raise prices. In addition, the winter and holiday season in the northern hemisphere and insanely expensive sea freight rate has cut down the overseas end-user’s demand, which does not encourage tire price to rise. However, the manufacturing cost of the factories is constantly increasing.
Another concern may pop up in your mind – Does tire price apparently ascend but actually descend in trend? Not really. The global tire inventory is not enough in the year-long epidemic situation, neither supply side nor demand side is able to make a clear and definite prediction on the economy ahead. Tyre distributors are not willing to stock up no matter if the prices go up or down. And that is why the tire prices have not risen in the end-user market though tire factories have raised prices several times.
In the end, ocean freight rate has been skyrocketing this year, which has never been a factor taken into account. Due to the long-lasing epidemic situation, a large number of containers are stranded around the world due to lockdowns and congestion at ports.
Since China has become the major manufacturing base for life supplies for the entire world, lots of containers loaded with export cargo went out of China but only few containers returned. Based on various factors we expect that ocean freight rate will not come to a rational level until April 2021.
Lunar New Year Holidays:
China is about to celebrate the Lunar New Year holidays during which the production will be off for nearly a month in February 2021. This will likely cause more short supplies & rising shipping costs.
Tire prices in the end-user market should have a decent increase in January and February in 2021.
However - if for some reason - the COVID-19 vaccine fails due to mutation of the virus; all our forecast will collapse.