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Bus tires: Makers adjust 4Ps to cope with tariffs

To keep overall sales strong, suppliers are veering away from passenger tires and exploring alternative markets.

China's tire industry is moving the sales mix away from its primary lines and market. The action comes in the wake of the US' announcement of a three-year tiered additional tariff on passenger and lighttruck tires starting Sept. 26, 2009. The import tax will be at 35 percent for the first year, 30 percent on the second year and 25 percent on the third.

Bus tire
  The TW-22 model from Tianjinshi Top is suitable for commercial buses.
Levied on top of the 4 percent duty already in place for all tire imports, the extra tariff raises the final price of China-made models in the US by $50 to $100. This has caused several clients to cut back on orders or refrain totally from purchasing. As a result, a number of tire manufacturers saw exports to the country decline an average of 60 percent in October and November.

The reduction is apparent in China's customs statistics. Although the US continued to be the top market, sales from passenger and bus tires sent there fell by more than 60 percent in October compared with the previous month. In 2008, export revenue grew 14 percent during the same period.

Feeling the pinch, suppliers focusing on the US are building up the export shares of models for buses, motorcycles and other applications to keep overall sales strong.

Additionally, companies are exploring alternative markets for growth opportunities. Many have set their sights on the developed economies of the EU, Canada and Australia, which will be able to accept models priced similarly to those sent to the US.

The euro zone currently accounts for 16 percent of China's export revenue from tires. Australia and Canada, meanwhile, rank fourth and sixth among the single-country importers.

Several suppliers are also looking into the developing economies of Eastern Europe and South America. Russia and Brazil, in particular, are considered attractive destinations.

The domestic market is considered a key growth area as well, with sales of cars, SUVs and other vehicles booming. In fact, thanks in part to tax cuts and its stimulus program, China overtook the US as the largest consumer of vehicles in the last quarter of 2009.

Under efforts to boost revenue, several enterprises are establishing sales offices or appointing agents in their chosen markets. A number are also spending more for online advertisements.

Nonetheless, even as strategies to offset lost sales from the US are being implemented, the country will remain an important export destination for the industry. Although currently weakened by the economic slowdown and the new tariff, demand from the market is still considerable. China suppliers note that their tires retain a price advantage over those from other hubs, despite the added duty pushing prices higher. Further, sales in the US are expected to become stronger after three years.

Cost challenge
Bus tire
  Kaifeng offers ATV tires that comply with E-Mark and DOT requirements.
Cost challenge

Faced with one crisis, tire suppliers are preparing to confront another obstacle to growth, namely rising raw material expenses. Spending for natural rubber, in particular, surged 30 percent to $2,950 per ton in November 2009 from levels earlier in the year. The increase was triggered largely by the anticipation of global recovery and a projected fall in output of key producing countries.

In coming months, some companies estimate that the cost of the polymer might increase further to reach $4,100 per ton. With natural rubber accounting for about 40 percent of total raw material outlay, suppliers are expected to jack up prices to cover higher expenses.

More than 60 percent of the natural rubber employed by China's tire industry is currently sourced overseas because domestic supply is not sufficient to meet demand. RSS3 is procured mainly in Thailand and Vietnam, while TSR20 is from Malaysia.

In China, Hainan and Yunnan provinces are the primary sources of the material. Suppliers of the polymer can also be found in Guangdong, Guangxi and Fujian provinces.

This article "Bus tires: Makers adjust 4Ps to cope with tariffs" is originally posted in Global Sources.

Note: All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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