Raw Material Price Drop Fuels Tire Price War
As an indispensable and important part of automobiles, tires have a complex and critical raw material composition for production. They are mainly composed of natural rubber, synthetic rubber, carbon black, steel and a variety of chemical raw materials.
Among them, natural rubber accounts for 28%, synthetic rubber accounts for 26%, and steel accounts for 9%. These three raw materials account for as high as 63%, while chemical raw materials account for 14%, including carbon black. In recent years, the prices of natural rubber and carbon black have fallen sharply.
From a theoretical perspective, this undoubtedly provides an opportunity for tire companies to expand their profit margins. However, the reality is that global tire price competition is becoming increasingly fierce, and the reasons behind it are worth exploring in depth.
The sharp drop in the prices of natural rubber and carbon black is not accidental. The decline in natural rubber prices is closely related to the expansion of planting areas and production growth. With the improvement of planting technology and the expansion of planting scale in major natural rubber producing areas such as Southeast Asia, the global supply of natural rubber continues to increase.
At the same time, the slowdown in the growth of the automobile market, especially the decline in demand in the traditional fuel vehicle market, has also reduced the demand for tires as automobile supporting products. The situation of oversupply has caused the price of natural rubber to continue to fall.
The decline in carbon black prices is mainly affected by fluctuations in oil prices and overcapacity in the industry. Carbon black production relies on petroleum derivatives. The downward trend of oil prices has compressed the production cost of carbon black. In addition, carbon black companies have blindly expanded their production capacity, resulting in fierce market competition and a price war on the verge of breaking out, which ultimately led to a sharp decline in carbon black prices.
In theory, the decline in natural rubber and carbon black prices can effectively reduce the production costs of tire companies, thereby increasing their profit margins. Companies can obtain higher profits while keeping product prices unchanged; or appropriately reduce product prices to attract more customers and expand market share. But the actual situation is that most tire companies choose the latter.
When one company takes the lead in reducing prices, other companies can only follow suit in order not to be eliminated by the market, thus triggering a price war. This has caused the profit margin that was originally expected to expand to be gradually compressed in the price competition, ultimately leading to more intense global tire price competition.
In addition, the global tire market itself is in a highly saturated state, with many brands and extremely fierce competition. Price is one of the important factors in consumers' purchasing decisions. When the cost of raw materials is reduced, companies hope to seize more market share and enhance their competitiveness by reducing prices.
Some emerging tire companies, relying on their cost advantages, have entered the market at lower prices, causing a huge impact on traditional tire giants. In order to consolidate their market position, traditional tire companies have to adopt a price reduction strategy to fight back, further intensifying the fierceness of price competition.
In this fierce price competition, small and medium-sized tire companies are facing tremendous survival pressure. Due to their relative weakness in technology research and development, brand influence, etc., they rely too much on price competition, resulting in meager profits or even losses.
Although large tire companies have a certain ability to resist risks, price competition has also seriously affected their profit growth and development strategies. In order to cope with price competition, tire companies need to constantly adjust their business strategies, strengthen technological innovation, improve product quality and added value, reduce dependence on price competition, and win the market through differentiated competition.
Although the sharp drop in the prices of natural rubber and carbon black has provided opportunities for tire companies to reduce costs, due to the complexity of market competition and the company's own strategic choices, it has intensified global tire price competition. In the future, tire companies can only remain invincible in the fierce market competition by continuously improving their core competitiveness.
