At the same time, as one industry insider told Tyres & Accessories, market conditions are changing and “you are no longer doing Chinese companies a favour by selling their tyres.”

So does this move mean the days of cheap Chinese tyres are numbered?

The Chinese government’s decision to cut its previously high tyre export subsidies from 13% to 5% – and to cut VAT refunds on wheels produced for export from 17% to 9% – is designed to address the country’s overwhelming export growth and is attempt to manage its trade surplus.

Traditionally, export VAT refunds have kept export prices low for tyremakers and tyre and wheel component suppliers exporting out of China. Now, however, according to an Ernst & Young report released June 20, “any change to a VAT refund rate will impact the prices charged on export goods as well as the profitability of exporters.”

At the same time as the export tax relief was cut by eight percentage points, shipping costs for most tyre importers went up around 5%. In June this meant increased shipping costs of around $300 a container. Now, however, other tyre importers have told Tyres & Accessories that the real cost increase is nearer $1,000 a container.

For them, the bad news is this upward trend is unlikely to get any better as the peak Christmas season draws closer and shipping demand grows stronger. All this is set against a background of increased cost factors that are common to everyone producing tyres at the moment. Labour and power costs may be lower in China, but high raw material prices are just as relevant to Chinese manufacturers as anyone else.

Price increases?

So, with a number of factors putting the beginnings of price pressure on the traditionally “low-cost” Chinese tyre manufacturers and international companies producing tyres in China, when are the price increases coming?

Some have already been and gone. The first company to explicitly mention the Chinese VAT situation as a pressure was Hankook Tire America, which said this was why it hiked prices by up to 7% from July 16. Hankook was followed by Giti Tire (USA) Ltd., which will reportedly pass on an increase of 5%-8%.

Many operations are still waiting to here information from their suppliers about whether and to what degree their prices will go up. And furthermore, some companies are expecting a second phase of price increases in the future when tyre manufacturers that source raw materials in China feel the impact of the price increases they began to feel in July and August.

On this side of the Atlantic, suppliers importing tyres into the U.K. and Europe, have been less clear about the exact price increases that can be expected, but just as clear that they are on their way. Commenting on recent increases in container shipping rates from the Far East NTDA Director Richard Edy said: “Container rates have increased by up to $300 in recent weeks and the Chinese government’s decision to reduce export subsidies by 8% in July will put added pressure on transportation costs which could have a marked effect on the price of brands from China. Transport costs have been creeping up over the past few years however the recently announced surge in container rates will filter through very quickly and wholesale prices to the trade will have to reflect these increases.”

Not everyone is sure that prices increases will come quickly. Some importers are suggesting that price increases will take effect more gradually than others. Many members of the NTDA’s powerful Tyre Wholesalers Group, which represents all the major tyre wholesalers operating the U.K. market, are involved in importing products from the Far Eastern markets and they report that prices for brands across the range from China will be under pressure in the coming few months.

Rob Henderson, U.K. and Europe general manager of Eskay Tyres (which import the Chinese produced Westlake and Infinity brands), told T&A that his company “does not expect to see an immediate knee-jerk reaction from its suppliers” as far as price increases are concerned.

Other large-scale Far Eastern tyre import specialists, such as Liverpool-based Kirkby Tyres & Wheels, have yet to hear details of any definite plans to increase prices from their Chinese suppliers. Speaking to T&A, managing director Dave Dorrity played down the impact shipping cost increases would have on Kirkby’s pricing, saying: “Our suppliers have excellent relationships with the shipping companies.”

Despite all this talk of price increases, there is still hope for anyone holding out for a short-term price freeze or just a minor price increase. Oddly it comes in the form of a product recall. As anyone with half an eye on the Asian tyre market will have seen, China’s second largest tyre manufacturer, Hangzhou Zhongce Rubber Co., has recently been suffering at the sharp end of a large portion of bad press in the U.S.

One effect of this high-profile dispute could be that Chinese manufacturers like Hangzhou Zhongce decide to absorb some or all of their additional costs and focus their customers’ attention on what has historically been one of their most persuasive assets – price.