The tire industry is in full expansion
What should we expect for the global tire industry? Estimates vary considerably, however a shift towards the Far East seems very likely
The position of the centre of gravity in a system depends largely on the distribution of its masses, and this happens also when talking about economic and industrial systems: if the "masses" are grouped at one end, the centre of gravity will shift closer to that point.
A similar phenomenon is taking place in the automotive sector, one of the most important industries in the world: as things stand, developing countries are progressively increasing their "weight", or importance, and therefore the industry, including a significant number of western enterprises, is moving towards a new centre of gravity.
First of all, let us take a good look at global trends in the tire market.
Research by the Imarc group, entitled "Tire Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast2018-2023", shows that, owing to growing sales, both in the private and commercial segment, particularly in developing countries, the demand for tires is on the rise.
Driven by a rising population, urbanization, changes in lifestyle and higher incomes, the purchasing power of consumers around the world has increased significantly. This has boosted the demand for cars, as well as other vehicles, which in turn is driving the growth of the global tire market.
In addition, higher investments in research and development and advanced technologies, such as energy-saving and run-flat tires, are making a significant contribution in driving the market. At the same time retreads too are playing an important role as they are particularly cost-effective and therefore contribute in bolstering sales globally. Moreover, as producing tailor-made tires or perfect fits can be considered an emerging trend, this too is expected to stimulate market growth in the near future.
Positive outlook despite a few clouds on the horizon
The global tire market reached an overall sales volume of about 3.4 billion units in 2017, growing at a composite annual rate of about 4.4% during the 2010 – 2017 period. In 2018, forecasts speak of 3.66 billion tires, while the 4 billion threshold will be reached in 2023.
We can split this market in two main sectors: OEMs and replacements. The demand generated by the Oem sector is directly linked to new vehicle sales and is therefore highly cyclical. The replacement sector, on the other hand, depends on how tires are used and much less on new vehicle trends, relying on the fact that the number of vehicle in circulation at any given time is more consistent when compared to new registrations.
The latter allows higher margins as tire makers are less likely to be strong-armed by vehicle manufacturers’ strong bargaining power.
In terms of geographical distribution, China represents the world's largest tire market. The automotive industry in that country has grown in a spectacular fashion and has, therefore, captured almost the entire production, both in terms of locally produced tires and consumption. Other key regions are Europe, the United States, India and Japan.
Continental observed that the last quarter of 2018 witnessed a global 4% decline in the production of cars and light commercial vehicles, and this decline is expected to continue also in the first half of 2019 due to the current weakness of the Chinese market, trade wars and the implementation of new Wltp environmental approvals.
Far East rising
Future prospects are looking good, though, since other vehicle segments are confirming their sales volumes and the contribution made by the replacement market. India, another Asian industrial giant, boasts a large manufacturing sector besides being a huge and attractive market. The tire industry requires massive investments and this reflects in the country’s GDP.
If the automotive sector accounted for 7.1% of the country’s GDP (in 2016) and almost 49% of India’s manufacturing GDP, tires were worth 3% of the total GDP. Not all that glitters is gold, though, and the Indian industrial scene is still marred by a limited use of radial tires especially on light commercial and heavy duty vehicles, a problem that needs to be effectively tackled in order to reduce fuel consumption and emissions. In this regard, the sensible thing to do would be to increase the use of silica, which, as we know, improves many of the characteristics in a tire. Furthermore, India aims to reduce (at least as far as private vehicles are concerned) the use of carbon black, not exactly friendly from an environmental point of view.
Indian companies are improving their manufacturing processes, to the point that, according to the local dealers association’s report, the tires of an average sized car currently weigh 2-3 kg less than they did back in 2013. This progressive enhancement is affecting tires designed for motorcycles and 3-wheeled vehicles, which are rather widespread in the country. Dividing the market into the usual segment, OEMs and replacements, the latter takes the lion’s share with about 56% of the total volume, thus leaving the remaining 44% to OEM products. Looking at product distribution, on the other hand, it is quite evident that 2 and 3-wheeled vehicles account for 54% of the market, cars 23% and trucks and buses 13%. The commercial segment makes up 21% of the volume, but if revenues are taken into account, then it soars to 73%, due to tires that are, on average, much more expensive.
Turning our attention to the rather lively export sector, estimates indicate a growth of 8-10% over the next three years, much as the result of a stable domestic demand and the growing popularity of Indian-made tires in foreign markets, thanks to competitive prices and better quality. In 2019, in terms of units sold and tonnage, growth is expected at around 8-8.5% and 6.5-7% respectively. According to the Automotive tire manufacturers association (Atma), India contributes 1.5 billion dollars (1.72%) to the global tire trade, a 80 billion dollar market. Atma, however, expects exports to reach as much as 5% of the global volumes. Nonetheless, a certain measure of concern stems from aggressive Chinese exports and dumping practices as internal weakness has created large stocks. The main destinations for Indian exports are the United States, Germany, France, the United Kingdom, Italy, Spain, Turkey, the Netherlands, the United Arab Emirates, Brazil and Australia.