Tire Raw Material Cost Update Feb 9

Tire Raw Material Cost Analysis, February 9th: Slight Cost Increase, Rubber Price Manipulation Key

Do you know why tire prices fluctuate? It largely depends on the cost of its raw materials. In tire manufacturing, raw material costs account for approximately 69% of the total product cost, with rubber making up a significant portion. Fluctuations in rubber prices directly affect tire costs.

Latest industry data shows that on February 9th, the domestic semi-steel tire raw material cost index rose slightly by 0.01% month-on-month, while the all-steel tire raw material cost index rose by 0.38%, showing an overall slight upward trend. 

The main reason behind this is that the phased increase in natural rubber prices provided support, while the simultaneous decrease in synthetic rubber prices had a certain hedging effect. The interplay between these two factors prevented a significant increase in the cost index, maintaining an overall pattern of slight, differentiated increases.

As the main raw material for tires, the price fluctuation of natural rubber is the key factor driving this cost increase. From a supply perspective, global natural rubber production is currently in a seasonal decline: tapping has completely ceased in Yunnan and Hainan, China, as has tapping in northern Thailand, and tapping in northeastern Thailand is nearing its end, with only a small amount remaining in southern Thailand.

Overall, global supply is contracting. Furthermore, rubber farmers' inventories are currently low, and their reluctance to sell at low prices is evident, further pushing up raw material prices. As of 2 PM on February 10th, the main rubber futures contract price had risen to 16,314 yuan/ton, up 0.83% from the previous day.

On the demand side, although some tire companies have reduced their operating rates due to the approaching Spring Festival, some small and medium-sized enterprises are still replenishing their inventories before the holiday. This has, to some extent, boosted demand for natural rubber, providing support for prices.

At the same time, the simultaneous decline in synthetic rubber prices has offset some of the cost pressure from rising natural rubber prices. This is also a key reason why the semi-steel tire cost index only increased slightly by 0.01%. Data shows that the closing price of synthetic rubber futures on February 9th was 12,810 yuan/ton, a slight decrease from the previous day, and has been trending downwards since the beginning of February.

The decline in synthetic rubber prices is mainly due to several factors: firstly, the recent downward fluctuation in international crude oil prices, a raw material, has weakened cost support; secondly, butadiene rubber inventories remain high, leading to strong incentives for price reductions by traders; and thirdly, tire manufacturers themselves have high inventories, making them cautious in purchasing synthetic rubber, further suppressing price increases.

You may have noticed that the cost increases for semi-steel tires and all-steel tires are not consistent. This is due to the different raw material ratios: in all-steel tires, natural rubber accounts for about 38%, while synthetic rubber accounts for only 5%, so the price increase of natural rubber has a more significant impact; while in semi-steel tires, natural rubber accounts for about 20%, and synthetic rubber accounts for 25%, so the decline in synthetic rubber prices largely offset the rise in natural rubber prices, resulting in only slight cost fluctuations.

In addition, the recent stability in the prices of other auxiliary materials such as carbon black and steel wire has also contributed to overall cost stability.

Overall, tire raw material costs are currently in a state of equilibrium between supply and demand. In the short term, costs may still have room for a slight increase due to the seasonal contraction in natural rubber supply, but the decline in synthetic rubber prices and the reduced operating rates of tire manufacturers will limit the increase. For tire companies, although current cost pressures have increased slightly, they are still within a controllable range and can be flexibly addressed by adjusting inventory and optimizing raw material ratios.

In the long term, global natural rubber production capacity is nearing its limit, and supply-side support is gradually emerging, while synthetic rubber prices will continue to fluctuate due to crude oil trends and supply-demand relationships. To determine the future direction of tire costs, we need to continue to monitor the recovery of natural rubber supply, changes in crude oil prices, and the pace of demand recovery in the tire market.