Not Cumulated Capacity, just Moving as a Wave TIRE CAPACITY May, 2007 WAVE Koo, Sunglim IR Manager, email to kooony@tire.kumho.co.kr
The Balancing induced by Capacity Moving from RED to BLUE like a Wave This Capacity Wave comes from the New Demands and Cost matter mainly Steady Steady Steady p1
Executive note Rubber & Plastics News Global Tire ReportAkronSep.4, 2006 The World s tire makers continue to invest billions on new production capacity, while shutting down older plants at a rapid pace, Rubber & Plastics News reported. From mid2005 through mid2006, the tire industry has announced investments that will add 100,000 passengers and light truck and 10,000 truck tires a day to global capacity.. At the same time, tire makers have shut down or earmarked for closing nine plants in the past year(2005). That will take about 97,000 units of daily capacity for passenger and light truck tires out of circulation by the end of the year. Net 0.9mn units yearly Closing of Capacity Yearly Expansion of Capacity p2 [Based on facilities of PCR / LTR]
China Today of Tire Production China produces about 190mn Radial, 108mn Bias annually (total 298mn estimated) Most Capacity located on Eastern China, especially JIANGSU, SHANDONG and these areas oriented the Radial by foreign brands Almost Bias products are produced at GUANGDONG, ANHUI Hebei prov., (+Beijing & Tianjin) produces above 30mn Radial Shandong & Jiangsu prov. produces at least 67mn Radial & 20mn Bias. Radial Capa. is concentrated on Jiangsu province(+shanghai). Anhui prov. produces 5mn Radial, 17mn Bias Capacity Breakdown (1mn a block) Fujian prov(xiamen). produces at least 25mn Radial & 1mn Bias driven by Cheng shin, Taiwanese brand Bias Radial p3 Guangdong prov. produces at least 38mn Radial & 60mn Bias
Chinese Operations of KUMHOTIRE In 2006, KUMHO Chinese overall production was about 15mn units In 2007, it will be increased at least 21mn units as 40% higher than 2006 Nanjing TBR plant will be opened from 2008 to meet with market demand Diversification of plants will strengthen cost competitiveness thanks to saving transportation expenses Company targets for No.1 Tire maker with 25% M/S of Chinese PCR/LTR market Changchun Initiated from 3.15mn Capa. Tianjin Annually 7.0mn Capa. Nanjing(2) TBR(Truck&Bus Radial) exclusively Nanjing(1) Annually 13.0mn Capa. TBR PCR/LTR p4
Correlation between Car plants and Tire plants Tire Capacity is oriented Eastern China in accordance with Auto plants. Therefore, RadialTire Capacity has developed mainly coastal areas. Company is diversifying the tire facilities to response each demand through China, to reduce transportation expenses at the same time. Changchun Beijing Shenyang Tianjin Chongqing Nanjing Wuhan Shanghai Guangzhou Based on Foreign Brands, Company Research p5
Breakdown of Radial Production Facilities for Radial may estimate 85% of total global production (15% is supposed as facilities for Bias only) China is producing about 12% of total Radial production globally The others included Bias tires U.S JAPAN CHINA S.KOREA (unit: 000) * Marked countries are based on the Radial production p6 U.S JAPAN CHINA S.KOREA GERMANY FRANCE BRAZIL RUSSIA INDONESIA CANADA SPAIN ITALY INDIA POLAND TAIWAN TURKEY The others [Company, Tire Business Statistics updated Feb. 2007]
Decreasing somewhere, China is just replacing these areas China has increased remarkably U.S. and W.Europe is going down slowly replaced by BRICs nations On this comparison, Radial may be steady but Bias may be bullish on specific areas Radial Tires (unit: 000) 200,000 China increased nearly 28% YoY 100,000 0 FY 2004 FY 2005 FY 2006(e) * Figures are based on the Radial production U.S. JAPAN CHINA S.KOREA GERMANY FRANCE BRAZIL RUSSIA INDONESIA CANADA SPAIN ITALY INDIA POLAND TAIWAN TURKEY p7 [Company, Tire Business Statistics updated Feb. 2007]
New expansion is going not only China but another places On the schedule in China 2007, the production capacity will be added 18.2mn units by foreign brands Besides China, new expansion designed 53.8mn units ExChina expansion is focused on mainly INDIA/RUSSIA/BRAZIL or Eastern Europe. ExCHINA BRANDS Michelin Bridgestone Goodyear Continental Pirelli Sumitomo Yokohama Cooper KUMHO Hankook Toyo Cheng Shin TOTAL CHINA PRODUCTION CAPACITY 3.0 4.2 4.3 4.0 1.0 12.0 20.0 8.6 22.0 79.1 REMARK PCR/LTR/TBR PCR/LTR/TBR PCR/LTR PCR/LTR PCR PCR/LTR J.V(Cheng Shin) Taiwan CAPACITY 1.0~3.5 0.3~1.0 0.4 3.0~5.0 10.3 1.0 18.2 PLANS in CHINA REMARK No timescale TBR(2006.H2) TBR(2007.09) 2007 2006/2007 TBR PLANS in ExCHINA CAPACITY 1.0~3.0 20.6 3.0 4.6 2.0 2.9 0.5 3.2 15.0 53.8 PLACE(Time) INDIA() Worldwide POLAND (2010) BRAZIL etc. (2007) ROMANIA (2008) THAI.(2007) VIETNAM (2007) VIETNAM (2008/Q1) HUNGARY etc. p8 [Company, Smithers Scientific Services, Inc.]
Problem is not China, but direction Major expanding countries are going to increase capacity more Although global major tire makers, some makers expand Bias Capacity for demand requirement geographically Actually Yokohama is building Bias facilities in Vietnam Bellow sticks include Bias facilities each country Recently India(Bridgestone), Russia and Hungary(Bridgestone) would be significant places as another strong expander (unit: mn) 350.0 Before 2006 Plans 2007 300.0 250.0 200.0 150.0 Emerging markets Scaling up the capacity (Total tire volume) 100.0 50.0 0.0 p9 CHINA INDIA BRAZIL RUSSIA POLAND HUNGARY Czech Rep. ROMANIA SLOVAK VIETNAM THAI
Today & Future, Local demand & Export and Speed Matters regarding Capacity Chinese overcapacity matter came from the difference between RED and BLUE It seems to be quite high capacity compared local demand, but we have to understand about the export from China Local demand will grow so far as the half of total Chinese production from 31% of 2006 China is rolling as a meaningful area not only Sales Market but also Production Base (unit: 000) 250,000 Production(Radial) Chinese Demand Export from China 200,000 150,000 100,000 50,000 0 Based on PCR/LTR only in CHINA (estimation) 2005 2006 2007 2008 2009 2010 2011 p10 [Company, Chinese Automobile Manufacturing Association]
Chinese Carexpanding has been faster than Tire Expansion since 2000 The bellow chart could be explained the situation which tire expansion is looking over next 45years at least It may be necessary to forecast Chinese Auto growing speed and local demand after 45 years or role as exporter from China whenever to be anxious about over production matter (unit: cars) 8,000,000 7,000,000 6,000,000 Car Production(Foreign Brand) Tire Production(Total PCR/LTR) (unit: 000 tires) 250,000 200,000 5,000,000 4,000,000 3,000,000 150,000 100,000 2,000,000 1,000,000 Chinese Auto Growth related Tire Expansion 50,000 0 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 0 p11 Car production sourced from J.D.Power, Goldman Sachs Research 2003, Company Research Tire production sourced from Tire Business Aug.2005, Company Research Tire production (RED curve) is cumulated
Looking for jumping demand around 20072008 as Rebound effect Chinese GDP had grown doubledigit since 1993, and continued to grow 8~10% until 2002. This high growth was cumulated to buy new vehicles till the significant shooting of 2002, it will be expected to make bigger tiredemand in Replacement Market after 5years. (unit: cars) 1,400,000 Car Sales (China) 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Sudden acceleration of Car Sales, China 2002 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 ARA Data, Goldman Sachs Research Designed by Company p12
SalesMix improvement of China Sales Mix will be improved toward HP/UHP(Premium) segment gradually After 2008 Beijing Olympic, Mix change is going to be regularized 90.0% 80.0% Demand improvement in Chinese market Premium (UHP) Standard 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% OP% estimation 10.0% 0.0% 2005(A) 2006(A) 2007(E) 2008(E) 2009(E) 2010(E) p13 [Company]
Blueprint as No.1 of Chinese production Company is aimed to be No.1 of Chinese PCR/LTR market over the next 3 years By end of 2009, KUMHO China is able to produce about 30mn units as many as Korean production (unit: 000) 33,000 30,000 27,000 24,000 21,000 18,000 15,000 12,000 9,000 6,000 3,000 0 KUMHO HK BS MC GY CS GT 2005 2006 2007 2008 2009 2010 2011 p14
M/S driving toward to No.1 of Chinese PCR market According to the stronger expansion of China, M/S will drive up to 21% in this year, and continues to reach 25% based on Chinese PCR market (M/S) 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% KUMHO HK BS MC GY CS GT (Except OE to Chinese local brands) 2005 2006 2007 2008 2009 2010 2011 p15
Sales powered by retailers networking Comparison of Retailers in China (unit: shop) KUMHO HK BS MC GY Agency 250 150 158 40 100 Premium Stores 876 1,000 500 300 100 Total 1,126 1,150 658 340 200 Remark PCR/LTR oriented PCR/LTR oriented TBR Agency (86shops) (CompanyRresearch, China) No. of Retailers (China) 1,600 1,126 1,250 1,400 p16 2006 2007 2008 2009
Estimated Action Plan by Michelin It s Chinese Capacity seems to be enough suitable for local demand Because M/C has already diversified worldwide, it doesn t need to export from China This brand has about 12mn Radial capacity in China right now including J.V brand, it is estimated around 10% market share in Chinese Radial Market. Another attractive places M/C is likely to satisfy this level right now, and so additional expansion has gone to India or Russia nowadays by recent market news M/C has no more than 3mn capacity in Russia and nothing in India until 2006 M/C has already announced India project(pcr/ltr/tbr), but not open the timescale yet. Start carefully in the Emerging markets Generally there is specific trend for new expansion to nascent markets that it will be initiated with TruckBus Radial facilities rather than PCR/LTR. It may be caused from stable expansion for industrializing rather than popularizing by PCR In this manner, M/C seems to specialize in the emerging market with TBR or Industrials, and then try to popularize with PCR p17
Estimated Action Plan by Bridgestone Strongest Expander who goes everywhere This brand has plans to expand more 20mn tire capacity within next 23years worldwide except China. Actually B/S announced several projects (HUNGARY/MEXICO/POLAND /US/COSTARICA/BRAZIL/INDIA and JAPAN). Simultaneous diversifying vertically China business, B/S announced planning of Synthetic Rubber Factory which it will be started from H1 of 2008. This brand doesn t announce Chinese Tire Project. According to the market news, output of S/Rubber will be reached up 50,000 tons per year and this is estimated to adequate 17.8mn tires Group companies are producing now S/Rubber in U.S., and Steel Cord in Japan, the U.S., Italy, Thailand and China, and operate Natural Rubber Estates in Indonesia and Liberia. Additionally B/S is building Carbon Black Factory in Mexico, it will produce 35,000tones annually from H2/2008 Automating for new Plant B/S will deploy its fully automated production system known as BIRD, production capacity is scheduled to reach about 2.9mn units annually by 2009. Already proven effective in Japan, BIRD is said to be almost twice as productive as existing systems. p18
The Opportunity moment in the Wave Chances Enlargement of Automated Plant (APU Plant of KUMHO has been operated since 2004 ) Faster expansion in China Growing M/S of China Continuous Value added lineup (Run Flat/AROMA/XSpeed etc on the back of UHP) Stronger brand awareness gradually Making narrow the price gap compared bigger brands Gearing up market position in China (Production is growing 40% annually) Capturing high demand from Global Car makers Specializing for Premium market p19
Strengthening the Industrial Wave (the Significant Changes) Demand Wave Chinese local demand will be grew up 100million annually over next 3years Cost Wave Growing the export volume from China to make better cost competitiveness due to the low cost production Vietnam s role as supporter for China Wave Brand Wave Someday China will be primary tire market sooner or later, and then BrandRipple Effect will be very strong for global tire market Sustainable Wave Thanks to the continuous innovation to Vietnam & Automations, all opportunities & China Wave would be sustained efficiently Tire Plants Natural RubberProcessing Plant p20
The Wave can create something change The Change can make the opportunities Information to Koo, Sunglim