Rubber hits 20,000 again, will the market see changes?

On February 14, 2024, the price of natural rubber once again hit a high of 18,000 yuan per ton, and the transaction price has gradually gone out of control.

Rubber prices are out of control, and tire factories are confused

At least it can be basically confirmed that by the end of March, the price of natural rubber will be difficult to fall. The first quarter of each year is the harvesting period in the main producing areas of natural rubber, and the supply basically depends on the reserves of the previous year.

Therefore, in the first quarter of each year, natural rubber will experience a crazy rise under the shortage of supply. In 2024, the price of natural rubber rose, resulting in an extremely high base for the price of natural rubber in 2025.

At the same time, the new round of capacity expansion of Chinese tire companies from 2023 to 2024 also made natural rubber more in short supply. From 2023 to 2024, 30 tire companies around the world invested a total of 337 million production capacity. Among them, the Chinese market added about 330 million production capacity (310 million semi-steel tires and 23.35 million full-steel tires). As of February 2025, tens of millions of new production capacity have been released.

What does this mean? Natural rubber stocks may not be enough! Therefore, even if the price of natural rubber cools down at the end of October 2024, the demand for more tire production capacity will make it difficult for natural rubber to return to its previous price-the lowest price in January 2025 is still more than 16,000 yuan per ton, and this one is the highest price from 2020 to the end of 2023.

In addition to natural rubber, the price of synthetic rubber is also rising. The latest data shows that the main price of synthetic rubber has risen to more than 14,000 yuan per ton.
As the price of natural rubber continues to rise, the price of synthetic rubber will continue to rise. The current prices of raw materials, which account for 49% of the cost of the two items, are at new highs, and the pressure on tire companies has returned to the third quarter of 2024.

If Chinese tire companies continue to maintain low-price advantages for higher sales as in the past, this year's profits may be more pessimistic.

Chinese tire companies are not profitable in the third quarter

From 2023 to 2024, the high inflation rate has given Chinese tires a rare development opportunity. Because of the high quality-price ratio advantage, Chinese tire companies have sold more tires than ever before. Compared with the 5% decline in sales and sales of overseas tire companies, the sales of Chinese tire companies have almost increased by about 30% in the past two years.

Before July 2024, the high quality-price ratio strategy of "small profits but quick turnover" went smoothly - more sales brought higher profits. In 2023, the annual profits of many tire companies more than tripled.

However, as the price of natural rubber continued to rise in September 2024, the disadvantages of "small profits but quick turnover" of Chinese tire companies immediately emerged. Some leading tire companies have experienced a decline of more than 10% in the third quarter of 2024. The profits of some tire companies that focus on truck tire production have even fallen by 60% year-on-year.

At the same time, due to the continuous downgrade of global tire consumption, Chinese tire companies began to reduce prices "without bottom line" in order to maintain their high and hard-to-get share, resulting in a decline in sales of many tire companies (even though sales did not decline in the third quarter). Data disclosed by well-known Chinese tire companies show that in 2024, in order to increase sales, the ex-factory price of truck tires has been as low as 600 to 800 yuan per tire.

At such a price, it is difficult to talk about profit. In the second half of 2024, the 30% increase in raw material costs has squeezed the profits of tire companies into "fish fillets".

Although most Chinese tire companies have not disclosed their profits in the last quarter of 2024, referring to the performance of other Asian tire companies with high quality-price ratios, Chinese tires may have suffered a profit decline of more than 10% in the fourth quarter.

In the first quarter of 2025, as the cost price of tires hits a new high, the profits of tire companies may be even more worrying. Some industry insiders worry that the profits of Chinese tire companies in 2025 may re-enter the danger of 2022. Of course, it is not only Chinese tire companies that are worried about the impact of costs on profits, but also overseas tire companies.

In fact, if it were not for the currency appreciation and the sale of property in 2024 to give foreign tire companies a "fig leaf", the profit income of some foreign tire companies might be very ugly. After all, not all tire brands will be accepted by the market when they increase prices.

Foreign tire companies with plummeting income

In 2024, some foreign tire companies have publicly pointed out in their financial reports that price increases are no longer an effective way to deal with costs.

It seems that except for the head foreign tire companies such as Michelin, which can rely on nearly a hundred years of reputation accumulation to achieve "painless price increases", more and more tire companies have begun to find that price increases are "seeking their own death" since 2024-price increases will cause sales to plummet. In fact, even if Michelin raises prices, it can feel the cost pressure.

According to the annual report data, the price increase alleviated the decline in sales by less than 4%, but the impact of the decline in sales on sales exceeded 5%. As for another giant, Goodyear's price increase only offset 70% of the impact caused by costs-price increases are useful, but not that useful. More well-known foreign tire companies simply close factories to "reduce costs" to maintain operations under high costs.

Foreign giants who have experienced great ups and downs have begun to become "at a loss" under rising costs. The panic of Chinese tire companies that are still familiar with the rules of the global market can be imagined. Raising prices is a death sentence; not raising prices is waiting for death. "How to survive?" has become a problem that global tire companies urgently need to solve in 2025.

Rubber prices are rising more and more crazy, and tire prices are falling from a high altitude.

Judging from the trend of tire prices in the first two months, most Chinese tire companies currently choose to "wait for death." Public data shows that the unit price of tire sales of Chinese tire companies will generally drop by 4% to 6% in 2024-the tire companies with a heavier proportion of truck tire business will have a greater price drop.

But ironically, truck tire profits are also the most dependent on raw material costs. Prices have dropped the fastest and costs have risen the highest. Many tire companies have just started to improve their performance, but they have fallen back to the horizon with a "bia" sound-they have worked for nothing in 2024. Under such circumstances, Chinese tire companies may risk raising prices in the "domestic market". Why? Because Chinese tire companies are still profitable in overseas markets.

From 2022 to 2024, the overseas market profits of most Chinese tire companies are around 20%, but the domestic market profits are below 10% - the domestic market has reached the point where they have to raise prices to survive. Moreover, many Chinese tire companies have issued price increase notices, and more tire companies will soon follow suit. A new round of price increases in the Chinese tire market is coming, and it's time for tire people to raise money and stock up again...