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Chaos – the new order

I was just getting settled in with my new-found joy of cost stabilisation, when I was woken up by a clear reminder that we are still very much under post-communist rule in China: all the factories in the main tyre production hub were given a one-day warning to ration their power consumption and, in effect, bring production to a complete stop during the full last week of June.

gregers-lindvigIt was apparently a big surprise to everyone, even though this happens every year, and our production arrangements were therefore not delayed a week, but simply cancelled, due to “force majeure.” How convenient.

All in all, chaos seems to be the new order of business here. There has been a very strange mood going on after prices stopped dropping, and some factories suddenly had their order books more than full in June, although most were rushing to make good of the option to supply PCR to the US market before the new duties kicked in. Now, where the final duties have been set at mad levels, ranging from 49 per cent to 190 per cent for the American importers (countervailing duty and anti-dumping tax combined), orders have basically disappeared, and I will be surprised if any factory can keep selling PCR to the US.

Well, I would not be surprised if any factory made a “strategic choice” of dumping prices to counter affect the anti-dumping tax – call it anti-anti-dumping, if you will – and I will assume this is the case if we do see factories continue to supply that market. It is about one third of the total PCR exports from China that disappear with the loss of the US market, and for some factories it is even their main export market, so it hits them particularly hard. All the new production lines that were preparing to put out 22” to 32” sizes of PCR will be hard pressed to find alternative takers for the products.

When so many factories at the same time are installing equipment to enable them to expand their production capabilities further, the remaining global markets can prepare to be flooded. Innovation and distinct features in products are now extremely important factors for all that don’t care to engage in the price game.

By Gregers Lindvig, General Manager, NDI China


(Full text in PTA August/September issue)

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