Bloomberg News

China Tire Demand Slows as Economy Decelerates, Bridgestone Says

April 24, 2012

Tire demand in China, the largest rubber consumer, is growing at a slower pace than last year as the nation’s economic expansion is decelerating, said an executive at Bridgestone Corp. (5108), the biggest tiremaker.

“The Chinese market is in an adjustment phase,” Vice President Makio Ohashi said in an interview yesterday. Growth in tire sales for trucks and buses, or half of the country’s demand, may slow to near the rate of gross domestic product expansion at 7.5 to 8 percent annually from last year’s 11 percent, said Ohashi. Passenger-car tire sales are also slowing from last year’s 16 percent expansion, he said.

China’s passenger-car sales fell 1.3 percent in the three months ended March 31, the first decline since the first quarter of 2005, according to the China Association of Automobile Manufacturers. Rubber futures on the Tokyo Commodity Exchange have lost 9.1 percent since March amid concerns the sovereign- debt crisis in Europe may derail the global recovery.

“A slowdown in Chinese demand is a big concern, putting rubber futures under pressure, as the nation led a rapid expansion in global tire sales in recent years,” said Kazuhiko Saito, an analyst at broker Fujitomi Co. in Tokyo.

Reduce Costs

China’s vehicle sales this year will probably miss their 8 percent growth forecast as the slowing economy and rising fuel costs curb buying, Gu Xianghua, deputy secretary general of state-backed CAAM, said on March 20. China, the world’s second- largest oil consumer, raised prices of gasoline by 7 percent and for diesel by 7.8 percent last month, the biggest increases in more than two years, according to data compiled by Bloomberg.

Lower rubber prices will help reduce costs for tiremakers, while they may force producers such as Thailand to reduce output, Saito said.

Bridgestone forecast in February operating profit will jump 41 percent to a record 269 billion yen in the year ending Dec. 31, based on the assumption that futures in Singapore will trade between $3.98 and $4.06 a kilogram. Ribbed-smoked-sheet rubber on the Singapore Exchange settled at $3.81 a kilogram yesterday.

Tire demand also weakened after distributors boosted stockpiles last year amid speculation that raw-material costs could increase further, leading to additional gains in tire prices, Ohashi said. Futures in Tokyo climbed to a record 535.7 yen a kilogram on Feb. 18, 2011, as demand growth led by China outpaced supply constrained by flooding in Thailand. The most active contract traded at 305.3 yen at 11:32 a.m.

India, Southeast Asia

Bridgestone plans to consume a record 1.99 million tons of rubber, including natural and synthetic, for tire production globally this year, rising 5.3 percent from last year, said Koaru Tomizawa, public relations manager.

A slowdown in Chinese sales may be offset by faster expansion in other emerging markets including India and Southeast Asian nations, helping Bridgestone achieve its tire sales target for this year of 2.72 trillion yen, Ohashi said.

Bridgestone forecasts Indian demand for replacement tires for trucks and buses will grow 39 percent this year from last year, while demand for passenger-car tires will expand 15 percent. Tire use in Thailand is expected to grow 24 percent for trucks and buses, and 13 percent for passenger-car tires.

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net


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