Competition from international markets has intensified in the local rubber industry, says South African Tyre Manufacturers Conference (SATMC) chairperson Dieter Horni.
He highlights electricity from State-owned power utility Eskom as a significant input cost, which is set to rise rapidly at more than 16% a year for at least the next five years. The metropolitan municipality councils add a substantial mark-up to the electricity they buy from Eskom and, as a result, electricity costs will become one of the highest in the world to South Africa’s manufacturing base, says Horni.
“These challenges in the industry have allowed East Asian countries to make substantial inroads into the local market because of their low tyre-production costs and frequently subsidised input costs.
“Even local labour rates are now [almost] one of the most expensive rates per person per ton of raw rubber in the tyre manufacturing industry.
About five-million tyres costing R4-billion were imported into South Africa during 2011. Import competition accounts for up to 50% of tyre sales in certain sectors. Although we do not have the figures for 2012, we estimate that it will be at the same level as that of 2011, although in some product groups, such as truck tyres, the import quantities continue to increase,” he explains.
The SATMC points out that, over the past years, all local tyre manufacturers have continuously invested in modernising South African plants to supply almost the entire range of tyres to passenger car, truck, bus and trailer manufacturers, as well as for all agricultural equipment, mining equipment and other off-the-road applications.
Local tyre manufacturers have, as a result, excess capacity, which needs to be filled to reduce the tyre unit cost and remain competitive with imported tyres.
Horni adds that there are no tyre manu- facturers in the South African Customs Union apart from the four in South Africa – Apollo Tyres South Africa , Bridgestone South Africa , Continental Tyre South Africa and Goodyear South Africa – which are represented nationwide.
Horni believes that the challenges facing tyre manufacturers and what is reported about South Africa in international news are raising doubt in the minds of existing and potential foreign investors and can ultimately lead to a major reduction of the manufacturing base in the country.
“The combined capacity of the four local tyre manufacturers is about 18-million tyres a year,” he says.
However, in the past six years, tyre volumes from Chinese manufacturers have increased substantially.
The SATMC says local tyre manufacturers face significant challenges to remaining competitive, beyond the general concern about the rising consumer price index and producer price index costs, as East Asian countries are increasingly penetrating the tyre export markets with below-inter- national-cost prices.
It is not the goal of local tyre-manufacturing companies to protect themselves by building walls in the form of import barriers, but rather to ensure that the international trade rules and standards are respected by all the role-players, Horni concludes.