The Changing Face of the Tyre Industry and Implications for the Synthetic Rubber Industry APIC 2014 May 2014 Robert Simmons (Head of Tyre & Rubber Research) [email protected] 26/05/2014 ©LMC International, 2013 1 Overview • Understanding the tyre market • Vehicle sales (OE Tyre Sales) • Replacement Tyre Sales • Tyre Production • Implications for the synthetic rubber industry 26/05/2014 ©LMC International, 2013 2 Drivers of Tyre Demand Vehicle Sales Scrapping rate/vehicle lifecycle Vehicle Parc Vehicle Production No. of Tyres per Vehicle OE Tyre Demand (LV 28% MHCV 21%) Replacement Ratio Replacement Tyre Demand (LV 72% MHCV 79%) Total Tyre Demand Trade in Tyres Production of Tyres 26/05/2014 ©LMC International, 2013 3 Tyre demand depends on vehicle ownership, both for sales of new vehicles (OE tyre sales) and replacement tyre sales. As incomes rise so1000vehicle ownership increases. USA No of LV per 1,000 population 900 800 Italy Canada France Spain 700 Germany Japan UK 600 Malaysia 500 Korea 400 Russia Mexico 300 Taiwan Brazil Turkey Thailand 200 100 India 0 0 China Indonesia 10,000 20,000 30,000 40,000 50,000 60,000 GDP per Capita 26/05/2014 ©LMC International, 2013 4 Strong growth in emerging market GDP during the 2000s encouraged vehicle ownership. Advance economies are picking up in 2014, but emerging markets are weak 8% GDP growth 6% 4% 2% 0% -2% -4% 2000 2002 2004 Advanced 26/05/2014 2006 2008 2010 Emerging ©LMC International, 2013 2012 2014 Advanced 2016 2018 Emerging 5 This can be seen in new vehicle sales EU-27 South America NAFTA India Eastern Europe East Asia China Asean 38% WORLD -10% -5% 0% 5% 10% 15% 20% Annual % change in LV vehicle sales 2012 26/05/2014 2013 ©LMC International, 2013 2014 6 USA New Zealand Australia Canada Finland Italy France Norw ay Germany Austria Spain Japan Switz erland Greece UK Slovenia Portugal Ireland Netherlands Belgium/Lux Poland Sweden Denmark Czech Malaysia Korea Slovakia Hungary Russia Taiwan Mexico Romania Argentina Chile Brazil Ukraine South Africa Turkey WORLD Thailand Venezuela Colombia China Indonesia Philippines India Nigeria 7 ©LMC International, 2013 26/05/2014 800 700 600 500 400 300 No. of LV (per 1,000 population) In the longer term, vehicle ownership levels are low in the emerging markets 1,000 900 200 100 0 Density (vehicles per 1,000 population) The growth of vehicle density follows an Scurve. 900 800 700 600 500 400 300 200 100 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Japan 26/05/2014 US ©LMC International, 2013 UK 8 400 800 350 775 300 750 250 725 200 700 150 675 100 650 50 625 0 600 Western Europe Density Emerging market density The emerging markets are entering the rapid growth stage, developed markets are approaching stagnation. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Brazil China 26/05/2014 India China (Urban) ©LMC International, 2013 Russia Western Europe 9 The same is true within China 250 Car density per 1,000 population Beijing 200 150 Zhejiang Tianjin 100 Shandong Guizhou Tibet Gansu Yunnan 50 Jiangsu Guangdong Shanghai Fujian 0 0 20,000 40,000 60,000 80,000 100,000 GDP per capita (RMB) 26/05/2014 ©LMC International, 2013 10 Growing incomes in emerging markets point to strong emerging market demand for vehicles (and OE tyres). Advanced market sales grow modestly. 70 Vehicle Sales (mn units) 60 50 40 30 20 10 0 2000 2002 2004 2006 2008 Mature 26/05/2014 2010 2012 2014 2016 2018 Emerging ©LMC International, 2013 11 Replacement tyre sales (the largest component of demand) are determined by: • Number of vehicles on the road (vehicle parc) • Vehicle use (incomes, fuel prices, economic activity) • Road and weather conditions • Type of tyre fitted (dependent upon legislation, tyre labelling, individual preference) • Retreading (raw material prices, economic activity) 26/05/2014 ©LMC International, 2013 12 With growing vehicle sales, parc growth in recent years has been dominated by emerging markets. Western Europe South America Oceania NAFTA Middle East India Eastern Europe East Asia China Central Europe ASEAN WORLD 0% 5% 10% 15% 20% Parc growth (5yr annual average) LV 26/05/2014 ©LMC International, 2013 MHCV 13 25 250 20 200 15 150 10 100 5 50 0 2000 2002 2004 USA 26/05/2014 2006 China 2008 USA Parc ©LMC International, 2013 2010 Vehicle Parc (mn units) Vehicle sales(mn units) Emerging market vehicle sales build parc. Developed market sales are mainly for parc replacement 2012 China Parc 14 110% 320% 105% 300% 100% 280% 95% 260% 90% 240% 2000 2002 2004 2006 2008 LV 26/05/2014 2010 2012 2014 2016 MHCV replacement ratio LV replacement ratio Global replacement ratios began to recover 2013. However, the trend was not the same across regions 2018 MHCV ©LMC International, 2013 15 The strongest growth was in Asia and the Americas. EU S America NAFTA India E Europe East Asia China ASEAN WORLD -14% -12% -10% -8% -6% -4% 2012 26/05/2014 -2% 0% 2% 4% 6% 8% 10% 2013 ©LMC International, 2013 16 4.20 3,100 3.70 3,000 3.20 2,900 2.70 2,800 2.20 2,700 1.70 2,600 1.20 2,500 0.70 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 3,200 Gasoline prices (S/gallon) Distance travelled (12 mth average (bn miles) This reflects growth in the number of miles driven US miles driven 26/05/2014 US miles driven ©LMC International, 2013 US gasoline price 17 Miles driven are also picking up in Europe 125 Distance driven (2001 =100) 120 115 110 105 100 95 90 85 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 UK (MHCV) 26/05/2014 UK (LV) ©LMC International, 2013 France (All) 18 As the light vehicle parc increases so do replacement tyre sales. Almost all growth is in emerging markets. Replacement Sales (mn units) 800 700 600 500 400 300 200 100 0 2000 2002 2004 2006 2008 2010 Advanced 26/05/2014 ©LMC International, 2013 2012 2014 2016 2018 Emerging 19 Emerging market demand is changing the tyre industry as demand has risen strongly in these markets Total tyres sales ('000 units) 1,500 1,400 1,300 1,200 Tyre sales growth 2004-13 1,100 World N.America Europe E.Asia ©LMC International, 2013 Other E.Europe India Middle East ASEAN S.America China World 26/05/2014 20 In terms of production, greater volumes are being traded. This is leading to a dislocation between sales and production. 900 75 800 68 700 61 600 54 500 47 400 40 LV exports (million tyres) 82 1998 2000 2002 2004 LV 26/05/2014 2006 2008 2010 MHCV exports ('000 tyres) 1,000 2012 MHCV ©LMC International, 2013 21 North America and EU-27 are the largest net importers … 125 LV net Imports (mn units) 100 75 50 25 0 -25 -50 -75 -100 -125 -150 Other India China ASEAN Oceania 26/05/2014 M. East S. America E. Asia Other Europe EU-27 NAFTA Net Imports 2011 Net Imports 2000 ©LMC International, 2013 22 Imports are largely for the replacement market, these reached close to record levels in 2013 Imports % of replacement sales 80% 70% 60% 50% 40% 30% 20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 US LV Imports % replacement EU LV Imports % replacement 26/05/2014 ©LMC International, 2013 US MHCV Imports % replacement EU MHCV Imports % replacement 23 Imports to the US grew strongly in 2013 with the ending of duties on Chinese imports US Light Vehicle Tyre Imports (millions) 190 180 170 160 150 140 130 120 110 100 90 80 70 2001 2004 SAAR 26/05/2014 2007 2010 Moving Average ©LMC International, 2013 2013 Annual 2016 Forecast 24 200 50% 180 45% 160 40% 140 35% 120 30% 100 25% 80 20% 60 15% 40 10% 20 5% 0 0% 2005 Asean 26/05/2014 2006 2007 China 2008 2009 2010 East Asia ©LMC International, 2013 2011 Other 2012 NAFTA China (%) US LV Tyre Imports (Millions) Imports are dominated by low cost producers. Chinese imports dropped between 2010 and 2012 with the introduction of an import duty, but grew strongly in 2013. Total imports did not fall. 2013 China % 25 US trade values shows the difference in price between imports and a US produced (exported) tyre. An imported Chinese tyre is half the price of a US exported tyre. 140 2013 Tyre unit price ($) 120 100 80 60 40 20 0 Czech Hungary Germany UK Portugal Italy France Brazil Romania Russia 26/05/2014 Japan Canada Slovakia Korea Philippines Mexico Chile Costa Rica Thailand Indonesia Vietnam China Taiwan Import unit values export unit values ©LMC International, 2013 26 Combining sales with trade shows a strong increase in tyre production in emerging markets, while advanced market production has fallen Total tyres sales ('000 units) 1,600 1,500 1,400 1,300 1,200 Production growth 2004-13 1,100 World N.America Europe Other ©LMC International, 2013 S.America E.Europe Middle East E.Asia India ASEAN China World 26/05/2014 27 Implications for synthetic rubber: tyre production and weight determine demand. Tyre sizes and hence weights are increasing 20 60 55 16 50 14 45 12 40 10 35 8 6 30 2000 2002 2004 2006 Car 26/05/2014 M/HCV tyre weight (kg) ma LV tyre weight (kg) ma 18 LCV 2008 2010 2012 MHCV ©LMC International, 2013 28 OE tyre sizes are increasing (for example: EU) 100% 90% 80% Total 70% 60% 50% 40% 30% 20% 10% 0% 2007 2008 2009 14 26/05/2014 2010 15 16 ©LMC International, 2013 2011 17 2012 2013 18 29 As with the tyre industry, demand is growing strongly in emerging markets. Unlike in the tyre industry, much of this demand is met from advanced market exports Net imports ('000 tonnes) 400 200 0 -200 -400 -600 -800 Other ©LMC International, 2013 India ASEAN BR China East Asia E Europe Europe S America N America 26/05/2014 SBR 30 However, capacity is increasing in the emerging markets. This is placing pressure on exporters 350 87% 300 84% 250 81% 200 78% 150 75% 100 72% 50 69% 0 66% 2003 2005 2007 2009 Imports 26/05/2014 ©LMC International, 2013 2011 Self-sufficiency (%) Production/imports ('000 tonnes) China SBR 2013 SBR 31 900 100% 800 90% 700 80% 600 70% China BR 500 400 50% 300 40% 200 30% 100 20% 0 10% 2000 Production 26/05/2014 60% 2002 2004 2006 2008 Capacity utilisation ©LMC International, 2013 2010 self-sufficiency/Capacity utilisation (%) Production ('000 tonnes) For polybutadiene rubber, Chinese self sufficiency is increasing, but capacity utilisation has fallen 2012 Self sufficiency 32 New capacity has also been commissioned in other net importing regions (India and ASEAN) 350 Net SBR imports Net imports ('000 tonnes) 300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ASEAN India 26/05/2014 ©LMC International, 2013 33 Changing raw materials: pressure to reduce CO2 leads to demand for low rolling resistance tyres. Starts with OE 200 180 Grams CO2/km 160 140 120 EU average CO2 emissions 100 80 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 26/05/2014 ©LMC International, 2013 34 Tyre labelling enhances this across the tyre spectrum. Demand is not static moving towards different raw materials (sSBR, enhanced sSBR,etc.) 140 120 List Price (€) 100 80 60 40 20 195/65/15/H 0 BA BB BC CA CB CC EB EC EE FC FE GC Rating (Rolling Resistance/Wet Grip) Budget Quality Premium 26/05/2014 ©LMC International, 2013 35 Conclusions • The focus of vehicle and tyre demand growth is moving to the emerging markets as incomes have risen. • In 2014, demand from in many emerging markets has slowed, however, the underlying story still holds. Demand is growing in the Advanced markets. • In addition, tyre trade is increasing, with increasing volumes produced in low cost countries and shipped to the advanced markets. This further encourages tyre production in emerging markets. • The focus of advanced market production is OE, the most technological advanced tyres. Pressure to reduce CO2 emissions is leading to demand for new materials. • Synthetic rubber capacity is increasing in emerging markets which is placing pressure on exporters. 26/05/2014 ©LMC International, 2013 36 Thank You www.lmc.co.uk Acknowledgments: 26/05/2014 ©LMC International, 2013 37 Oxford th 4 Floor, Clarendon House 52 Cornmarket Street Oxford OX1 3HJ UK New York 1841 Broadway New York, NY 10023 USA T +44 1865 791737 F +44 1865 791739 [email protected] T +1 (212) 586-2427 F +1 (212) 397-4756 [email protected] Kuala Lumpur B-03-19, Empire Soho Empire Subang Jalan SS16/1, SS16 47500 Subang Jaya Selangor Darul Ehsan Malaysia T +603 5611 9337 Singapore 16 Collyer Quay #21-00 Singapore 049318 Singapore [email protected] [email protected] Tel: +65 6818 9231 © LMC International, 2014 All rights reserved This presentation and its contents are to be held confidential by the client, and are not to be disclosed, in whole or in part, in any manner, to a third party without the prior written consent of LMC International. While LMC has endeavoured to ensure the accuracy of the data, estimates and forecasts contained in this presentation, any decisions based on them (including those involving investment and planning) are at the client’s own risk. LMC International can accept no liability regarding information analysis and forecasts contained in this presentation. 26/05/2014 ©LMC International, 2013 38
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