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Rise in tyre imports exacting a toll on SA producers

24th January 2014

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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The rapid growth in imported tyres is becoming an increasing concern to local producers, says Continental Tyre South Africa (CTSA) MD and South African Tyre Manufacturers Conference (SATMC) chairperson Dieter Horni.

“Chinese exports to South Africa are growing and this will most likely lead to job losses. The trend is clear.”

The SATMC employed 6 900 people in 2007, with this shrinking to just more than 6 200 people in 2013.

CTSA manufactures tyres in Port Elizabeth.

In 2008, imported car tyres had a 33% market share in South Africa, growing to 43% in 2012.

This year, it will probably be close to 50%, says Horni.

In the truck tyre market, imports made up 33% of the market in 2008, growing to 55% in 2012.

Imported tyres come mainly from Asian countries, such as China.

In 2011, South African tyre makers lost an antidumping case against the importation of cheaper Chinese tyres.

Horni says local tyre manufacturers are not able to produce tyres at the cost of Asian imports.

However, he adds, the SATMC believes imported tyres are often not declared at the right value when they enter the country, with the SATMC now working with the South African Bureau of Standards to rectify this, in a process that should also safeguard consumers against low-quality products.

When calculating the minimum price for the production of tyres, it has been found that imported tyres are often underdeclared, with the South African Revenue Service “very interested in this”, notes ContiTrade Africa MD Rolf Lensch.

Approaching the International Trade Administration Commission of South Africa (Itac) to institute an antidumping investigation into imported tyres may not be a viable option, says Horni.

Following the local tyre industry’s 2005 approach to Itac, which led to the 2011 court ruling, manufacturers warned that the ruling set a bad precedent for future antidumping applications on any Chinese imports.

Horni says the SATMC is “in communication” with Itac, but does “not believe” antidumping charges will be successful.


While there are positives to manufacturing tyres in South Africa, such as government’s support programme for the local automotive industry – the Automotive Production and Development Programme – as well as support for enterprise development and skills investment, there are also many negatives, says Horni.

One such negative is electricity pricing, with the real average electricity price (in 2012 prices) 23.1c/kWh in 1974, increasing to 50.3c/kWh in 2011 and 2012. This is forecast to reach 86.8c/kWh in 2017 and 2018.

Horni says it is difficult to produce tyres cost- effectively at these tariffs.

He adds that the CTSA factory also faces regular downtime owing to erratic service delivery from the Nelson Mandela Bay metropolitan municipality, including water supply.

CTSA also seeks more stable electricity supply from the municipality, at a stable pricing structure.

Port fees are also expensive.

Another negative is Redisa – the Recycling and Economic Development Initiative of South Africa – which is a nonprofit organisation with the stated aim to develop a South African tyre recycling industry through an industrywide waste tyre management plan.

Horni says the industry pays millions to Redisa to collect and recycle tyres, but that the body has, for the last 12 months, “not collected the tyres”.

“We don’t have a problem with Redisa, but with how it is being implemented.”

Labour uncertainty is yet another concern.

Local tyre manufacturers avoided a strike last year, following protracted negotiations, but were still affected by strikes in the components and vehicle industries.

“We were down for four weeks at our plant,” says Horni.

He notes that the SATMC also has little idea what is happening with the wide-ranging carbon tax legislation poised for introduction in South Africa.

CTSA, in particular, is also concerned about the cancellation of South Africa’s bilateral investment treaties, such as the one with Germany – home to CTSA’s parent company.

In November, the South African government published a framework to replace these treaties, the draft Promotion and Protection of Investment Bill, to be introduced as part of an overhaul of the regulatory framework for foreign investment in South Africa.

Horni says CTSA is concerned about this legislation as it no longer allows foreign companies to seek recourse in an international court of arbitration, while it also appears to allow for the South African government to take a share in companies as it sees fit.

“We were protected by the old treaties, but now there is uncertainty. Why must we invest here if there is no legal base to do so safely?”

All this makes it “very difficult to be profitable” in South Africa, he adds.

That said, however, CTSA remains invested in South Africa, having just announced that it will pour more than R100-million into its local operations this year.

Horni says CTSA was forced to change strategy in an effort to prosper.

CTSA now runs a retail channel, where it previously had none. It is also increasing production of the more expensive speciality tyres for construction, mining and agricultural equipment.

South Africa has some of the best infrastructure in Africa, which makes it “an excellent springboard” into the rest of the continent, adds Horni. The country also has a strong skills set, compared with the rest of Africa.

“I believe, from South Africa, going north, there will be huge opportunities going forward.

“We just need to convince our parent company to support us.”


Redisa has been in operation for six months and has faced “several unique challenges regarding tyre waste management”, comments Redisa director Stacey Davidson.

The South African car parc consists of some nine-million vehicles, which means there are close to 40-million legacy tyres already in circulation.

“From the onset, Redisa has had to deal with a backlog of waste tyres. That is why a phased implementation of collection has been instituted,” notes Davidson.

According to the plan, Redisa was required to start collecting passenger, 4 × 4 and truck tyres within ten months of the start of operations.

However, adds Davidson, phased implementation does not mean that every tyre dealer will see a portion of his or her tyres collected.

“It means that, as collections roll out, more and more tyre dealers will be serviced and have all their tyres collected, but others will still have no tyres collected until their area is serviced.

Davidson says Redisa has, in the six months it has been operating, contracted nine recyclers, of which five are in Gauteng, one in the Eastern Cape, one in KwaZulu-Natal, and two in the Western Cape.

In total, Redisa has serviced 70 tyre dealers, of which 48 are in the Western Cape and 22 in KwaZulu-Natal.

There are 1 483 tyre dealers registered with Redisa.

Davidson says Redisa has processed 16 230 t of waste tyres since July 2013 out of an estimated 170 000 t of waste tyres generated a year.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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