In the first six months, the tire output by the association’s members was about 124 million units, an increase of 12% from the previous year, reports Reuters, citing an unnamed senior official of the association.

China is the world’s biggest natural rubber consumer. However, it is also a country without natural rubber resources. In 2006, the natural rubber imports accounted for 70% of the nation’s total consumption. Last year, the percentage grew to 75%.

"In the past, we had seen the growth rate at about 18%," says the official.

The association’s 46 members account for about 70% of China’s tire production, the official adds.

Statistics from Chinese Customs show that in the first half of the year, 160 million units of tires were exported from China, valued at $3.94 billion, rising 4.6% and 22.1% respectively from the same period last year.

However, the growth of the export volumes and revenue fell 17.6% and 18.6%, respectively.

"Although tire output and sales growth was relatively strong, profits fell sharply, mainly because the prices of raw materials, especially natural and synthetic rubber, have surged, eating into companies’ profits," the China Rubber Industry Association said in a statement on its website.

The profits of rubber association members fell 7%. Eight of them were in the red – 18.6 percent of the association’s membership.

It also warned that if rubber prices do not ease, one third of the tire producers would be pushed into the red by the end of the year.

"In the second half, some manufacturing facilities in China may see closedowns," says an official of Doublestar Group Co. Ltd. in Shandong province, one of the top 10 Chinese tiremakers. "The export volume of our Doublestar tires dropped by 30% in the first six months.

"The costs of raw materials are growing too fast, breaking the balance between the cost and pricing. The depressed profit margin makes us unprofitable in the global market," he adds. "As a result, we can only export top-grade and high-value all-steel radial-ply tires."

Aeolus Tire Co. Ltd. in Henan province is also challenged by the rising costs.

"Currently, our export volume is still moving up, however, the financial returns are going in the opposite direction," says export manager surnamed Xu at Aeolus Tire in Jiaozuo.

Spot prices of natural rubber rose about 30 percent in the first half, to 27,000-28,000 yuan a ton, traders says.

Moreover, by the end of May, the steel price index in China jumped 25.1%, according to National Development and Reform Commission.

"In the second half of this year, the price of natural rubber may increase another 30% to leaven raw material costs. We are enduring unprecedented pressure," says the official with Doublestar.

Analysts also believe that the change in the structure of the export tire market is also a reason for China’s tire industry to fret.

"In the global market, the all-steel radial-ply tires are replacing bias ply tires. Therefore, Chinese tiremakers like Doublestar that focus on the bias ply tires cannot progress as they did years before," says an analyst based in Beijing.

On the other hand, China’s tire industry has been one of the industries that has suffered from international trade barriers most frequently in the past years.

The tire industry has been the target of anti-dumping investigations conducted by more than 10 countries, including the U.S., Australia, Brazil, Egypt, South Africa, and India.

The dumping allegations have included not only low value-added tires as motorcycle tires and bias ply tires, but also high value-added TBR (truck bus radial) tires, one of the dominant products in China’s tire market.

Analysis from Shihua International Financial Information Co. Ltd., a leading provider of financial information services in China suggests the China tire industry should reinforce the management and regulation of the industry and enhance the coordination and cooperation of the tire association, in order to ease the risks of trade barriers as well improve tiremakers’ capabilities to deal with the barriers.

Car sales are also slowing in China, the world’s second-largest vehicle market, with July showing the lowest annual increase in two years as consumers delay purchases due to a fuel price hikes and slowing economic growth.

The slowdown in the automobile industry is likely to affect the tire industry within a few months, traders and industry officials said.

China is the world’s biggest tire manufacturing base, with output in 2007 hitting 556 million units, occupying 18 percent of the international market.

Global tire heavyweights, including Michelin, Goodyear Tire & Rubber Co., and Bridgestone Corp, have all set up plants in China.

By the end of 2006, the foreign tire conglomerates had established 19 enterprises with 36 plants in China.

By 2010, the total tire demand in China is expected to reach 300 million units. (Tire Review/Akron)