As I write, the Indian government has announced anti-dumping tariffs of up to USD452/tonne on TBR tyres imported from China. The decision comes in the wake of a complaint by India’s tyre makers, put forward in April 2016. The process is known to take around 18 months, and so it has gone according to due process.A rough rule of thumb suggests that a truck tyre weighs about 60kg. That has been increasing worldwide, as the trucking industry moves toward super-single tyres. I tend to use an average figure closer to 70kg nowadays.Based on this approximation, the Indian duties correspond to about USD30 per tyre. The going wholesale rate in China for a domestically-produced, no-name truck tyre has been around USD100 per unit for the last few years. It ticked up in the last 12 months due to higher input costs in China, and now stands at about CNY900 per unit. That corresponds to about USD140, or INR9000 in late September 2017. These rule-of-thumb values are supported by US customs data showing the average declared customs value of Chinese tyres in 2016 was USD91 per unit (that’s 9,971,791 tyres valued at a total of USD 910,777,644). The average import volume (to the US from China) in 2016 was around 831k per month. That plunged to about half normal levels in the period from Feb-April, and has since recovered to more normal levels, despite a 30% increase in declared customs value since the start of this year.
Month (2017) Jan Feb Mar April May June July
Imported units 825k 486k 306k 407k 613k 639k 803k
Average unit value 80.17 83.67 85.38 95.81 100.70 106.45 104.06
At the beginning of this year, the United States was expected to impose an anti-dumping penalty (ADD) of around 22% and a further 52% countervailing duty (CVD) on Chinese TBR imports. At the then-prevailing value of USD80 per tyre, that would correspond to an ADD of USD17.6 and a CVD of USD 41.6, or roughly USD60 per unit. At today’s customs values of just over USD100 per unit, it corresponds to import duties of USD77 per tyre.These were never imposed because the Commission found, in a shock result, that Chinese imports had not damaged the domestic US truck tyre manufacturing industry. That decision is currently being challenged in the US courts by the Steelworkers’ Union (USW) that originally brought the complaint.A couple of years ago, the Russian region, called the Eurasian Economic Commission (ECE) imposed duties on Chinese TBR tyres. These ranged between 14.8% and 35.4% and were imposed for a five-year period from September 2015. These duties were on top of an existing rate of 11.7%, bringing the overall duties to somewhere between 25% and 47%. The higher figure applies to the vast majority of importers, while about 30 named importers were given lower rates – mostly below 20%. This favoured group includes most of the better-known names in China’s truck tyre business.The third main investigation into China’s truck tyre exports comes from the European Commission. This was announced in August 2017, but according to the expected timetable no decision is expected before November 2018. There is no indication on the level of duties that might be imposed.ARE INDIA’S DUTIES ENOUGH?In the light of the harsh duties that were proposed in the United States, it has to be asked if the $30/unit duties imposed in India will be enough to protect Indian tyre makers.The stock markets appear to think so. Share prices among the main tyre makers jumped 10% after the anti-dumping rates were announced. Indian tyre makers have a very clear cost structure. Corporate reporting rules in India require companies to publish their raw materials costs. For the top companies, this is public information. In the last few years, the top tyre makers have spent upwards of 60% of net revenues on raw materials. This makes them heavily exposed to sharp movements in raw materials prices, such as those seen in early 2017, and another wave that may be coming through in the final quarter of 2017.This cost structure is very similar to the situation in China, where tyre makers are also heavily exposed to raw material price fluctuations.We have seen this in the financial results of all the main tyre makers. While revenues increased over the previous year, costs increased even faster, driving operating profits down, or even into the red in the case of JK.Taking the results of the top-5 tyre makers in India (MRF, Apollo, JK, BKT and Ceat) together, revenues for the three months to June increased by 12%, but operating profits fell to less than one-fifth of the year-before figure, due to a 31% increase in raw materials costs.Chinese tyre makers suffered the same fate. Their first-half (six months to June) financial results showed the same pattern. Some dropped into the red, while all of them saw profits fall substantially, even though revenues increased.It is too early to tell if a USD30/unit duty on TBR tyres from China will help the Indian industry, but it seems clear to me that the bigger issue is learning to manage the impact of price increases better. The argument in the US was that domestic tyre makers simply increase the prices of their tyres to the point where Chinese tyres become competitive again. And that is borne out by the data above: despite a USD25 per unit increase in value, Chinese tyre imports to the US doubled in the period from April to July.This means that the tariffs might help the tyre makers, but it will damage the fleets in India, who rely on tyres to keep their trucks running.Unless, of course, the famously porous coastline sees an increase in mis-declared goods arriving from China, and those find their way into the economy, with minimal benefit to either the Indian government, or the tyre makers, who will have to keep prices low in order to compete with a big increase in illegal imports.
