DRAFT Analysis: Chinese slowdown still weighs on tire machinery sector

London – The slump in China’s tire-making industry – following the imposition of US-import duties on its car tires in late 2014 – hit machinery suppliers particularly hard, with sales among domestic manufacturers down by more than 30 percent last year.

And the negative trend is continuing this year as evidenced by the latest soundings from some of the main players in the sector.

For the first six months of 2016, Mesnac reported an operating loss of 63 million yuan (€8.4 million) – its first ever half-year operating loss since going public in 2006.

Revenues shrank by 36 percent to 918 million yuan, with decreases in both domestic and overseas markets. Sales were down 24 percent in the domestic market and 65 percent overseas.

“Rubber machinery sales [were] less than expected due to a slowdown in tire makers’ investment,” said Mesnac’s interim report. This segment accounted for 46 percent of the company’s total revenue.

Another Chinese machinery maker TST reported a 32-percent drop in half-year revenues to 126 million yuan. Net loss, though, remained fairly stable.

Global economic slowdown, domestic tire overcapacity, China’s tightening environmental regulations as well as the US anti-dumping tariffs have led to plummeting orders for rubber machinery, said TST’s first-half report.

There was also little sign of any recovery among tire-makers in China: Aeolus, for example, reporting a 14-percent, year-on-year drop in sales, to around 2,860 million yuan, for the first six months of 2016.

Jiaozuo-based Aeolus linked the first-half decline to “depressed demand in the domestic replacement market, the anti-dumping and countervailing tariffs overseas, and the declining exchange rates.”

The continuing decline in the Chinese tire manufacturing industry was also being felt by Western tire machinery suppliers at the half-year stage.

VMI parent company TKH Group NV, for instance, reported a drop in its second quarter results due to a continuing decline in orders from China.

“The situation in China did not improve in the second quarter due to the postponement of a number of expected orders, also from the big five tire manufacturers,” said Alexander van der Lof, CEO of Dutch -based TKH.

The CEO did go on to signal an improving order outlook in the second half of the year, including a framework agreement with a major tire manufacturer. He did not, though, identify the client, or the location of any related project.