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US market sees tire price hikes

March 9th, 2020 | by Tire Industry Research
US market sees tire price hikes

By David Shaw

Many international tire manufacturers raised their retail price in the North American market in March

Michelin: From March 16th the US market price rose +7%, and the Canadian market price rose +5%.

 • Sumitomo: Falken Tire prices in the US market were +5% from March 1st.

Goodyear: PCR prices will rise by 5% in North America from April 1st. Although dealers recently began to push “tire price rises”, as of this week Chinese tires have not seen any large-scale price increases.

Pricing situation

• Since the start of the COVID19 outbreak from January 20th, as of this week only Wanli has announced price increases (on February 10th Wanli announced the price of its main specifications increasing by CNY15mn).

• At the end of 2019 some manufacturers raised prices .

COVID-19 inventory gap drives price increases

The COVID-19 epidemic has caused many tire factories in China to delay resuming production until much later than the original January 24 to February 3 Spring Festival Holidays. Also, tire inventory in the domestic market has not been consumed because of commercial restrictions. As end-terminal tires stores open and the Chinese government further promotes the large-scale resumption of work, some are speculating that tire prices will rise in large areas and calling on dealers to seize the opportunity to purchase before the price increases.

Our view: Tire prices are being gamed by multiple factors

• We can see that China’s economic operations began to restore normality on a large scale this Monday, with many public services re-opening. This will restart domestic tire sales and also help give employees the confidence to return to cities where factories are based (but the possibility of a local outbreak still cannot be discounted).

• Because of the decrease in outbound delivery and logistics in February, auto manufacturers have reduced production volume because of supply chain issues, and at the same time foreign trade and port efficiency has been greatly reduced. This means tire inventory in the domestic market has not been consumed.

• Traditionally, Chinese distributors’ order time is concentrated after the Spring Festival holiday, but a large number of dealer ordering meetings have been cancelled, which will cause an inventory panic downstream.

• As for the cost of tires, the government has launched a large number of policies to hedge the costs incurred by the COVID-19 epidemic, including by postponing debts, because of raw material price increases; for example Prinx Chengshan (+2%) and Huaxing Wanda (+5%).

Future short-term trends

• Since traditional “spring tire dealer order meetings” were affected by COVID19 large areas have seen delays. Despite “online order meetings” recently held by Zhongce and Linglong, order numbers in general are still unsatisfactory. It is expected, though, that as the situation develops dealers will gradually resume ordering. • Southeast Asia will enter its NR harvesting period in May, which is also the subject of “speculation” around tire company “price increases” .• The main problem for tire manufacturers is currently the “worker shortage”. Whether labor shortages can be solved (potentially increasing costs) may also become important in negotiating price increases 2020.

Article courtesy of: Tire Industry Research

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