Tire Maker Kenda to Start Construction of 2 Factories in China

Kenda Rubber Ind. Co., Ltd., a major tire maker in Taiwan, recently announced its scheduled start of construction of two tire factories in China by the end of the year, including the second factory in Kunshan (Jiangsu Province) and another in Huizhou (Guangdong province), with the plant construction being accelerated in Indonesia.

The two plants being evaluated for construction, including one in Chongqing (Sichuan Province) and another in Wuhan (Hubei Province), Kenda said, are on hold due to the ongoing U.S. antidumping and countervailing investigation.

The International Trade Commission (ITC) of the U.S. voted 6-0 to continue an antidumping and countervailing duty investigation against passenger and light truck tire imports from China, sending the case into its next phase, in late July. After the September 17 preliminary determination on countervailing duties, the U.S. government is scheduled to make its preliminary determination on dumping margins on Dec. 1.

In September 2009, in fact, the Obama administration granted relief, in the eyes of Taiwanese tire suppliers, in the form of high tariffs against Chinese tires. The tariffs reverted to the previous level of 4% in September 2012. In testimony before the ITC, the United Steelworkers (USW) said Chinese tire imports skyrocketed after the Section 421 tariffs ended—from 24.5 million in 2011 to 50.8 million in 2013.

Taiwanese tire makers said that when the U.S. antidumping and countervailing duties on Chinese tires are implemented, annual export volume of tires made in China to the U.S. is forecast to decrease 20 million to 30 million units, or to cut Chinese tire market by half, from about 24% in 2013 to about 12%. The flip-side is tire prices in the U.S. would likely soar after 2015 to affect American consumers.

A Taiwanese source added that the effective period of antidumping and countervailing duties is five years, and further extendable by another five years after review. So China's tire industry will likely be battered by possible overcapacity and increasingly fierce underselling in other regional markets when Chinese companies kick into survival mode.

With the duties in place, Taiwanese tire makers said, smaller or weaker tire makers in China might be gradually weeded out, with bigger and stronger ones to try to set up overseas plants to evade high duties, which may cause  possible domino effects as other nations investigate antidumping locally.

Yang Yin-ming, Kenda chairman, reiterated that his company's factory constructions in Kunshan and Huizhou will stay on course, with the Indonesian investment plan to be accelerated.

Optimistic about growth potential of the tire market in Indonesia, Kenda has decided to set up a factory there. Yang emphasized that steadily rising income in Indonesia will result in higher demand for vehicle tires, particularly motorcycle tires.

West Java is chosen as the location for the factory, to occupy about 35 hectares and cost roughly NT$10 billion (US$333.33 million) and produce bicycle and motorcycle tires initially and then passenger car radial (PCR) tires, mostly for the domestic market. The Indonesian plant will be Kenda's second manufacturing base in Southeast Asia, following the first  in Vietnam. The company will be the second Taiwanese tire maker with a foothold in Indonesia, after Cheng Shin Rubber Industry Co., Ltd.

To cope with impacts from the antidumping and countervailing duties on tires made in China, Kenda plans to install new equipment in Taiwan to produce the same-specification tires currently supplied by its Chinese factories for export to the U.S. In addition, the firm's Taiwanese factories are expected to also take original equipment manufacturing (OEM) orders from overseas brands. In general, Kenda said, the U.S. sanction duties on Chinese tires are expected to be more blessing than bane for the firm's global operation.

Cheng Shin

Cheng Shin, Kenda's major counterpart in Taiwan, recently announced plans to build a factory in Indonesia to make motorcycle tires and PCR tires, with construction scheduled to begin in March 2015. The Indonesian facilities will be Cheng Shin's third plant in the Association of Southeast Asian Nations (ASEAN) area, following others in Thailand and Vietnam. The maker said that products from the new factory will initially be sold in the local and international replacement aftermarket, then the Indonesian original equipment (OE) market.

First-stage construction is expected to be completed by March 2016, and the new plant's targeted maximum daily production capacity will be 40,000 motorcycle tires and 16,000 PCR tires. Cheng Shin estimates that its investment in the new motorcycle-tire factory will reach NT$3 billion (US$100 million), excluding land cost, and that total investment in the entire plant complex in Indonesia (including the PCR tire facility) will be about US$300 million.

Regarding the antidumping duties, Cheng Shin said the capacity-expansion plans at its Chinese factories in Jimei (Fujian Province), Zhangzhou (Fujian Province) and Chongqing (Sichuan Province) will remain unchanged, and that sales won't be impacted significantly for its China-to-USA PCR tire exports are minor, with the majority made in Taiwan and Thailand.