World tyre market waits for serious decline

04:51' PM - Wednesday, 12/08/2020

During the first quarter of 2020, with the beginning of the coronavirus pandemic, almost all leading companies in the world reduced revenue. Some producers made a loss.

American Cooper's sales fell by 14,1% to $532 million, net loss totalled $12m. To compare, in January-March 2019, the company’s net profit was $7m. At the peak of the pandemic, Cooper suspended production in factories in the USA, China, Serbia, Britain and Mexico. The company’s management considers that it will be able to evaluate the consequences after the second quarter, which became the toughest.

Goodyear carried big losses, net losses during the first three months in 2020 amounted to $619 million. Sales decreased by 18%, to 31,3 million tyres. Sales in original equipment dropped by 21%, in replacement — by 16%. The company is cutting operating and capital costs, expenses on marketing and advertising, it has closed its oldest tyre factory in Gadsden,

Another tyre company in the States, Titan International, demonstrated a loss of $25,5 million during the first three months in 2020. The manufacturers’ sales plummeted by $68,9 million — to $341,5 million.

The total amount of tyre suppliers in the American market in 2020 will hit a record low in decades — 273,6 million units (-18% against 2019), thinks the US Tire Manufacturers Association. The association forecasts that car tyres in original equipment will decrease by 24,3%, to 35 million tyres, in light lorries — by 18,4%, to 4,8 million tyres, in lorries — by 30,7%, to 4,5 million tyres. Supply of car tyres in the replacement market will go down by 17,2%, to 184,4 million tyres, in light lorries — by 16%, to 27,3 million tyres, in lorries — by 7,3%, to 17,6 million tyres.

The Chinese tyre company Doublestar's losses during the first quarter of 2020 were $8,2 million, profit during the same period last year was $2,1 million. Revenue diminished by 28%, to $112 million. The situation in the Chinese tyre market in general was tense. Tyre exports from the Celestial Kingdom reduced by 11,3%, to 102 million tyres in January-March (data from the General Administration of Customs of the PRC). In monetary terms, exports went down by 13,2%, to $3bn.

Italy’s Pirelli significantly reduced capacities. The company’s sales in the first quarter dropped by 20% compared to last year’s analogous period and totalled a bit more than a billion. Net profit reduced to 38,5 million (101,4 million a year earlier). Pirelli tyre sales decreased both in the replacement care tyre market (-19,3%) on account of the population’s limited mobility in different countries and in original equipment (-22,7%) as a result of the car production decline. The company expects a new worsening of the numbers in this quarter, as demand in the world tyre market is forecasted to go down by 40%.

Continental from Germany also registered worse financial indicators. Sales in the first quarter decreased by 10,9%, to 9,8bn, adjusted EBIT — from 884m to 432m, while EBIT profitability did from 8,1% to 4,4%. In mid-March, the company suspended the operation of over 40% of its 249 enterprises in different countries of the world. Such a situation was novel for all players of the sector, noted Director General of Continental Elmar Degenhart.

Bridgestone’s operating profit in January-March decreased almost twice — by 48,8%, to 48,8bn yen ($400m), revenue dropped by 11,3%, to 752bn yen ($7bn). The Japanese corporation suspended the production in factories in Europe and the USA in the first quarter. Bridgestone sales shrank in all regions, more notably in China and in Asia-Pacific — by 25%, to 90bn yen.

Another Japanese tyre manufacturer Yokohama Rubber also reduced indicators. The company’s Q1 operating profit plunged by 90,4%, to 1,2bn yen (10,2m). Sales decreased by 13,6%, to 129,1bn yen. Losses totalled 258m yen, moreover, a year earlier the corporation ended the period with a profit of 9,1bn yen.

Nokian’s adjusted operating profit in January-March dropped by 71,%, to 16,3m, sales did by 17,8%, to 279,8. The Finnish concern’s tyre sales in Russia and Asia reduced by 39,1%, to 56,5m. The market of car and off-road vehicle tyres contracted more perceptibly — by 24,7%, moreover, 85% of tyres of this category were made in Russia. Measures for reducing the excess in distributors’ warehouses in Russia, reduction in economic activity against the backdrop of COVID-19 and mild winter are the causes of the decline.

Hankook's financial performance as well as all tyre producers’ numbers suddenly diminished due to lower demand during the pandemic, a decline in the world economy, smaller purchasing activity and a production shutdown in the company’s factories. Revenue in the first quarter reduced by 20%, to $1,202bn, while operating profit — by 29%, to $88,6 million.

Tyre manufacturers are expecting bigger losses after the second quarter of 2020. Goodyear calculated that tyre sales in April-June would fall approximately by 50% compared to last year’s analogous period, to 25 million units. Continental A.G. and Pirelli & Co. S.p.A. are making similar forecasts — they have claimed that consumer tyre supplies in Europe and America might go down by 30-40% in the second quarter.

“From our point of view, the world hasn’t faced similar threats in the last years. If we, for instance, compare it with the crisis in 2008-2009, that crisis was financial. It could be ‘put off’ with money, which was done. But this time we are dealing with a crisis that has affected the real sector of the economy around the world. Governments of different countries are trying to take the same road they followed previously going by the famous saying: ‘If the problem can be solved by money, it's not a problem’. But money injection in the economy will serve as temporary comfort in security markets. In the current situation, it will be of little help. It takes time for the imbalanced market mechanism to recover its previous working regime,” head of the Sales Monitoring and Analysis Department of the Sales Office at Nizhnekamskneftekhim PJSC Ildar Martyshev thinks.

The supply of tyre products will drop by 45-50 million units around the world

Related sectors also suffered as a result of lower demand for tyres. For instance, synthetic rubber manufacturers for whom tyre companies are the main consumers had to reduce the load and bring forward major repairs.

Tyre manufacturers’ supplier, leading rubber producer Nizhnekamskneftekhim characterised the situation in the real sector of the world economy very uncertain in its Q1 2020 report (the enterprise hasn’t yet published the report for the second quarter). Logistic chains were broken, a lot of enterprises of the car industry and tyre sector suspended the production around the world due to a fall in demand. The producer indicated that over 120 tyre plants of different companies stood idle from late March to early May 2020: Continental, Goodyear, Bridgestone, Pirelli, Cooper Tire, Hankook, Nokian Tyres and others. In April, Indian authorities announced a 21-day lockdown, which was applied to local tyre manufacturers as well.

“In view of the above, demand for synthetic rubber has suffered very much. By our estimate, only considering the announced shutdowns of tyre plants, the supply of tyre products will drop by 45-50 million units around the world this year. This will lead to at least a 2% contraction of global demand for synthetic rubber in 2020. At this moment the situation is uncertain, but it is assumed the biggest decline in SR sales will be in the second quarter of 2020 — it is a period with the biggest number of shutdowns in the world’s tyre and car sectors,” reads NKNK’s report. Despite the worsened situation in the market, the world’s big tyre manufacturers maintained rubber purchase agreements. As Realnoe Vremya wrote in another analytic review, Nizhnekamskneftekhim managed to extend annual contracts with key consumers thanks to a high quality of its products.

The company took all measures to adapt to the new conditions. In particularly it brought forward synthetic rubber plants’ major repairs to reduce the supply of SR as much as possible during a low demand period.

- Source: Realnoe Vremya-

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