AKRON—A steady increase in the number of vehicles produced in China, combined with an ever-widening road network and a stable, slow-growth economy bodes well for tire makers in China, a new study predicts. Tire production in China is forecast to grow nearly 9 percent a year from 1999 to 2003, according to Smithers Scientific Services Inc.'s latest study on China, rising to 150.3 million units in four years from 106.5 million in 1999.
The one limiting factor to growth, however, could be the availability of affordable locally produced raw materials, the study's authors maintained.
Of 14 key raw materials identified, China is believed to be self-sufficient in only four and lacks production altogether for two—polyisoprene and butyl rubber.
In addition to the inadequate supply situation, tire manufacturers also cite problems with the quality of locally available supplies as well as logistical difficulties in shipments internally.
In the case of rubber chemicals, for example, there are more than 20 plants producing accelerators and, in most cases, tire makers are forced to use multiple sources of the materials, resulting in additional variations in the manufacturing process, Smithers said.
At the same time, however, Chinese manufacturers have divulged expansion plans for nine of the 10 raw material categories for which capacity now is lacking, according to the Smithers study.
Driving demand for tires is a steady growth in the vehicle population, Smithers' researchers said. From a base of fewer than 200,000 cars, trucks and buses produced in 1981, annual domestic production rose to 1.6 million units in 1998.
Production of these plus farm transportation vehicles and motorcycles is expected to grow an average of 3.9 percent a year through 2003 to 15.8 million units from 13.6 million in 1999.
Smithers' figures differ from other published numbers because the Akron-based firm includes estimates for farm transportation vehicles—three- or four-wheeled, low-speed, on- and off-road vehicles.
Sales of these multipurpose vehicles were estimated at 3 million in 1998—compared with sales of 526,000 passenger cars—and this category of vehicle accounts for upwards of 17 million tires a year, Smithers estimated.
Parallel to growing demand for and availability of vehicles, China has increased the number of miles of paved highway by nearly 33 percent a year for the past 16 years, to an estimated 12,000 miles in 1997.
With annual estimated production of nearly 40 million light and medium truck and bus tires, China ranks third in the world in this type of production, after the U.S. and Japan. And it's gaining on Japan.
It already may be No. 1 in medium and heavy truck tire output, with production estimates exceeding 17 million units, according to various Chinese sources.
Its car tire production of 9 million to 10 million units, on the other hand, ranks it 13th or 14th worldwide.
Smithers projects demand for farm vehicle tires will outstrip overall growth—climbing 12.1 percent annually through 2003. The company also predicted that demand for passenger car tires will increase faster than other categories, reflecting the growth in output and ownership of personal use vehicles.
There are quite a few intangibles to consider when dealing with China, Smithers' researchers said, including overlapping layers of bureaucracy and understanding the effects of indirect government influence.
The latter often manifests itself in the form of local vs. regional vs. national jurisdiction, the researchers said.
The process used in the study focused on reconciling confusing product definitions and disparate data, because while statistics and projections for China can be easy to find, they typically are not consistent or reliable, said Duane L. Hile, general manager of Smithers Management Consulting Group.
Smithers' forecasts for China took into account not only the industry's specific projections for tires and rubber products, but also looked at ``reasonable and supportable'' product demand and practical growth projections.
Among these factors was the relative stability of Chinese currency. While most of Asia suffered economic difficulties throughout 1998, the Chinese renminbi maintained a relatively stable exchange rate to the dollar.
Smithers devoted more than 200 man-days over nine months to compile the multi-client study.
The cost is $12,500, a price that gives the purchaser the opportunity to challenge the conclusions and have Smithers' researchers recalculate their forecasts using client parameters.