Supply-side reform will drive the tire industry

As the industry economy continues to slump, the market is generally pessimistic about the investment opportunities of the petrochemical industry in 2016.

But the author believes that this year, whether it is overcapacity or oil prices are approaching the turning point of change, especially as the country is pushing for supply-side reforms , it is very likely that the unqualified backward production capacity will be forcibly withdrawn through the hard constraints of environmental protection, and state-owned enterprises in the industry The merger and reorganization will also accelerate, which will lead to major investment opportunities.

Supply-side reform will drive the tire industry

The implementation to specific industries, because with the continuous increase in domestic car stocks, replacement tires will become more demanding, and in the future there is likely to be a large inflection point of natural rubber prices, will stimulate the tire industry's restocking needs.

Supply side reform and breeding opportunities

The chemical industry has been declining for nearly 5 years since 2011, and its root cause is overcapacity and lack of superposition of demand.

Only some of the opportunities come from the supply contraction brought by environmental pressure to some industries, such as dyes and glyphosate. Therefore, when the production capacity is cleared, it will become the fundamental driving force for the absolute boom.

If the cycle of natural evolution evolves naturally, it can almost be asserted that the profit margin of chemical companies this year may exceed 2008. However, whether or not there is a great deal of prosperity and a decline in prosperity is an eternal law of the cycle.

The author believes that at present, whether it is oil or overcapacity are approaching the turning point of change, and supply-side reform is undoubtedly the industry's biggest change this year, but also bred huge investment opportunities.

In the past few years, heavy asset companies in the industry basically relied on bank loans to survive. The debt ratio of the industry has also reached over 70%, which is difficult to maintain for a long time. If it is not resolved, the market will most likely suffer the most pessimistic. Deduction, that is, "Minsk moment."

In recent years, although the country has adopted a series of measures such as fiscal and monetary stimulus to stimulate demand, it has only alleviated the inability to eradicate overcapacity in the industry. In the future, only the large-scale bankruptcy and reorganization of enterprises will realize the clear-cutting of production capacity, which will ultimately solve the problem.

If only relying on the spontaneous power of the market, the large-scale bankruptcy of enterprises will appear in 2017-2018, when the production capacity is expected to clear gradually, but this process will undoubtedly be very painful.

The supply-side reform that reflects the will of the country will undoubtedly accelerate the speed of production capacity clearing and reconstruct the balance between supply and demand in a relatively short period of time. Once successful, the future cyclical industry will re-enter the benign profit track.

Since this year's supply clearing will likely be led by the government, rather than the market's self-issuance, it is difficult to make forward-looking judgments from the current fundamentals such as the company's financial status and industry prosperity.

For state-owned enterprises, the most likely means of de-capacity is mergers and reorganizations among large-scale enterprises. If iconic mergers and acquisitions between traditional companies take place this year to reduce production capacity, market enthusiasm may be ignited even if fundamentals are improved. It will take time, but the stock price will still be a big-scale reaction.

For private enterprises, the most realistic way to reduce production capacity is to strengthen environmental protection constraints. Companies that require environmental protection to fail to meet standards must establish new environmental protection devices to meet rigid standards.

For most manufacturing industries, profitability has been very thin, and companies that are able to have new environmental protection devices represent the highest level in the industry.

Therefore, with the help of environmental protection, enterprises can be effectively screened and real elimination of backward production capacity can be realized. At this point in time, the author judged that it is highly probable that after the Central Economic Conference, it is expected to start from the end of the first quarter of this year to the beginning of the second quarter.

For the stock selection standard, the preferred industry is already at the bottom, the industrial concentration is increasing, the demand is relatively stable, and the state-owned enterprises account for a certain percentage of the industry, but they basically belong to the industry's highest-cost production capacity and have no long-term survival value.

In the context of supply-side reforms and the country's strong capacity-to-capacity, this part of the backward state-owned production capacity will inevitably choose to withdraw. Then, the remaining high-quality enterprises will be expected to enjoy the dividends of increasing industry concentration and improving profits.

Tire bottoming out is highly likely

Due to the sharp decline in exports caused by the “double reverse” landing, the tire industry fell to its lowest point in 2015. However, I believe that the probability of a reversal of the tire industry's economy this year is not small, for the following reasons:

First, the demand for tire replacement has grown dramatically.

In the past few years, benefiting from the high annual growth in car sales, the domestic demand for tires comes from the high proportion of new car accessories. Although the growth rate of car sales will gradually decline in the future, the inventory is already 2.3 times that of 2009, and it still maintains high growth, and the demand for replacement is increasing.

The average service life of tires is 3-5 years. It is expected that the large number of cars sold in China in early 2016 will also enter the peak of tire replacement. From the American experience, the ratio of replacing and adding tires is 3:1, while that of China is 3:2.

Therefore, as the stock increases, there will be room for further growth in replacement demand in the future.

What is more crucial is that the supporting tires in the vehicle market are mainly foreign-owned brands, and the replacement market is mainly domestic brands. Therefore, in the future, for domestic enterprises, the replacement market is very promising.

Second, the economy is at an absolute low point, and the industry is doing its best.

In 2015, the "double reverse" formally landed, and the biggest industry bad has already been done. And from 2010 onwards, the tire industry's economy has fallen sharply and has lasted for 5 years. It is basically in the longest recession period. The current profitability of the industry is also the lowest point in history. It is basically insignificant and many companies have stopped production. qiut the market.

The third is the rebound of resources, increasing the probability of natural rubber upwards.

Natural rubber is the most sensitive target of price elasticity in resources. Since its decline in 2011, the decline time has reached 5 years, and the decline rate has also reached 75%. The rebound opportunities in the future will be very large, which will greatly stimulate the demand for tire inventory.

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