FocusUS tariffs on China tyre imports to force cuts in output

14 September 2009 07:53  [Source: ICIS news]

(Recasts lead)

By Judith Wang, Dolly Wu and Helen Yan

SHANGHAI (ICIS news)--China will have to cut its tyre production following a decision by the US, a major tyre market for China, to levy an additional tariff on imports of the Chinese product, analysts said on Monday.

Starting 26 September, the US will levy a further 35% duty on imports of Chinese tyres used in passenger vehicles and light trucks, with the rate slightly declining in the second and third years of implementation, the US government announced last Friday.

This extra tariff rate will decline to 30% in the second year and 25% in the third year.

The existing tariff is around 3.4-4.0%.

China’s Ministry of Commerce (MoC) decried that the new policy was a violation of US commitments to free trade.

“It is the biggest strike on China’s tyre companies in the medium and long term,” said Ran Fei, an analyst with Shenzhen-based brokerage Century Securities.

The US imported 46m tyres out of China last year, roughly 8.4% of China’s total tyre production of 546m, based on official data.

Analysts said China exports about 40% of its annual tyre output, and that the share of the US market to overall exports was about a third.

Without the US, tyre makers will have to produce less as the domestic market would not be able to absorb the excess output, they added.

“It is not very easy to explore the new markets, so plant closures and output reduction will be the helpless choices,” said Ran from Century Securities.

Wang Liusheng, an analyst with brokerage China Merchants Securities, said that China’s tyre exports could easily decline by half this year because of the US move.

The tyre industry’s upstream synthetic rubber market was bracing for some cost pressures following the US decision to restrict tyre imports from China through the additional duties.

“We expect demand from tyre makers in China to fall by 30% in the fourth quarter as they already hold at least one month’s inventories and will only purchase on a need-to basis,” a Chinese synthetic rubber producer said.

Prices of natural rubber, which is used as substitute for synthetic rubber, fell on Monday in Asia due to the new US policy.

Natural rubber futures prices fell 7% on the Tokyo Commodity Exchange to yen (Y) 195.0/kg ($2.15/kg) and 5% at the Shanghai Futures Exchange to yuan (CNY) 17,710/tonne ($2,593/tonne) this morning.

“This will put pressure on the synthetic rubber prices to fall,” a synthetic rubber maker said, adding that the fourth-quarter contract talks with Chinese tyre makers will be most challenging amid the current difficult market conditions.

“[We] will settle [synthetic rubber] contract prices for October on a tentative basis and wait for a clearer picture before we start to talk about November or December contracts,” said a source from a major tyre maker.

The US government decided to impose the high duty after the US International Trade Commission established that the surge in Chinese tyre imports has hurt the local industry, although the actual tariff rates were lower than the recommended additional rate of 55% during the first year of implementation.

China disagreed, citing official statistics showing its tyre exports to the US just increased by 2.2% in 2008. In the first half of this year, exports have declined 16% year on year, according to its MoC.

It further countered that Chinese tyres mainly catered to the automobile repair market in the US, and provided no direct competition with US-made tyres supplied to car producers.

In an apparent direct response, China has started an anti-dumping and anti-subsidies investigation into its imports of US car products and chicken meat.

($1 = CNY6.83/$1 = Y90.58)

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By: Judith Wang
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