Published On: Thu, Mar 19th, 2009

China Tire Makers Boost Output, Lifting Rubber Demand (Update2)

(Bloomberg) — China’s tire makers are running at full capacity after demand picked up on government stimulus measures to revive the auto industry, boosting purchases of rubber by the world’s biggest consumer of the raw material.

“Tire makers did see a recovery from the end of February and by the start of March it was back to full capacity,” said Shen Jinrong, chairman of Hangzhou Zhongce Rubber Co. Ltd., China’s second-largest tire maker. “But it remains uncertain how long this will be sustained.”

Chinese vehicle sales surged 25 percent in February, the first gain in four months, after the government cut taxes on some models. Tires account for 60 percent to 70 percent of rubber products made in China, Fan Rende, chairman of the China Rubber Industry Association, said March 17.

“They seemed to have used up inventories and tire manufacturers in China are raising production to 80 percent or 90 percent of capacity, so there’s been demand coming on in recent months,” Jason Tan, head of sales at Von Bundit Ltd., Thailand’s biggest rubber exporter, said by phone from Phuket. “They are buying aggressively”

Sales in China’s automobile market, the world’s biggest after surpassing the U.S. in January, jumped to 827,600 vehicles last month after a retail tax on small cars was halved. The government is now giving out 5 billion yuan ($732 million) in subsidies to boost auto sales in rural areas.

Prices Fall

Natural rubber has slumped 50 percent in the past year as the global recession slashed tire demand. Europe’s car market shrank 7.8 percent in 2008, while U.S. sales contracted 18 percent to a 16-year low. Rubber for August delivery gained 0.6 percent to 141.8 yen a kilogram ($1,482 a ton) on the Tokyo Commodity Exchange today.

“The Chinese rubber demand outlook is uncertain because we have to wait and see if the positive factors in the economy will overwhelm the negative ones, or vice versa,” Shen said in an interview at a conference in Guangzhou today.

The government is rolling out a 4 trillion yuan package, including spending on roads, power grids and housing, to boost the economy, which grew at its weakest pace in seven years in the fourth quarter. China’s Premier Wen Jiabao said this month the nation’s 8 percent growth target was within reach.

“The stimulus program is trickling through the system,” Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore, said today. The package “has 1 trillion yuan out of 4 trillion yuan for infrastructure projects, which will lift domestic demand for construction vehicles.”

Consumption Growth

Consumption of natural rubber in China, the world’s third- largest economy, may expand by 4.7 percent to 2.65 million tons this year from 2.53 million tons last year, the China Rubber Industry Association’s Fan said this week. That’s slower than the 7.7 percent growth in 2008.

China’s demand for synthetic rubber will be firm in 2009 as consumption of the natural rubber rival falls by 4 percent to 5 percent worldwide, James McGraw, managing director of the International Institute of Synthetic Rubber Producers, said today.

“Chinese demand will probably continue to be robust,” said McGraw. The group’s members supply 95 percent of the world’s synthetic rubber, according to its Web site. Synthetic rubber is made from naphtha, which is distilled from petroleum.

Also bolstering demand, China’s State Reserve Bureau may buy as much as 80,000 tons of natural rubber from the domestic market to boost prices, Fan had said.

To contact the reporter on this story: Feiwen Rong in Beijing at

source: bloomberg.com