On April 5, Cabot Corporation increased prices for specialty carbon black products up to 8 percent and also increased the prices of other chemicals such as silica in the Americas and Europe, the Middle East, and Africa (EMEA) regions. It fits what we saw in China since the second half of last year. China's raw material prices are actually leading inductors for the rest of the world as China consumes the most raw materials in the world as the “factory of the world.”
However, we saw the prices of raw materials within China are stabilizing or even decreasing recently. Carbon Black has stable at around 7750 CNY/Ton. Natural rubber actually dropped almost 20% from the high to trade below 13000 CNY/Ton, according to 100ppi.com.
So the question is will tire prices decrease from here?
We need to look at it from a few angles:
1. The big fluctuation of major commodities prices such as rubber prices may come from speculative money besides the real demands on rubber. As oil price topped out in mid-March and stabilized around 60 dollars. It is normal to have some pull back on highly traded commodities such as rubber. However, for more specific commodities such as carbon black, I think the price will be stickier and those are driven by production and logistics capacities which are still under some disruptions since the pandemic.
2. Shortage on semiconductor shortage affecting the production of new cars. It will definitely affect the OE market on tires. However, we don’t see that within China. New car and truck sales reach 6.5M vehicles in the first 3 months of 2021. Sales are especially strong in commercial vehicles as the post-pandemic infrastructure plan in China is already started. We probably will see the same in the US as continuous recovery and starting of President Biden’s infrastructure plan. We already see the second-hand car market is exceptionally strong in the US now which will definitely help in the replacement market.
3. The shortage of automotive semiconductors is an interesting story. During the pandemic, automakers canceled a lot of orders as demand dropped to the floor during the global lockdown. On the other hand, because of the tech war between the US and China, most electronic makers from Apple to Huawei stockpiling up chips to ensure production. They occupied all the capacity of fabs which have extremely long lead times. When the auto market picks up, automakers found that they cannot secure capacities on semiconductors in the near future. Then a small fire in a Japanese factory that makes the control board for sensing units in cars pretty much stopped the whole supply chain also.
4. The recent global supply chain disruption incentivize traders’ stock up products. The pandemic removed a lot of excess capacity from the market and recent supply chain “accidents,” such as the blockage of the Suez Canal. Continuous trade and tech war between the US and China and geopolitical issues in various parts of the world do make the extremely fine-tuned, long lead-time supply chain less reliable than before.
5. Consolidation in the Chinese tire market continuous. Both government and monetary policies will force more consolidation with hundred of tire makers within China. We already see very strong results from top players such as ZC Rubber and Linglong while very small players are struggling and some are even bankrupted and absorbed by other manufacturers. We probably will see less price competition among Chinese manufacturers.
So I echo ZC Rubber’s Mr. Ge Guorong’s in my earlier post. The turning point of tire prices won’t come at least until the second half of the year. However, turning point means it could either go up or down from here. Trader beware!
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