Thai-Cambodian Conflict Triggers Surge in Rubber Prices! Will Tire Prices Reverse from Decline to Rise?

Recently, gunfire suddenly erupted in the Siem Reap-Surin area on the Thailand-Cambodia border. This military conflict not only pushed the relations between the two countries to a freezing point but also sent shockwaves through the global rubber market. What seems like a local border skirmish has actually struck precisely at the sensitive hub of global rubber supply: Thailand, as the world's top rubber exporter, accounts for 38% of China's imports; while Cambodia has a smaller share, its border areas are its main rubber-producing zones.

Traffic blockades in the conflict zone have directly undermined rubber farmers' sense of security in their work, spreading risk-averse sentiment among them. More critically, international transportation arteries are being choked: with the closure of Thailand-Cambodia border checkpoints, economic and trade logistics between the two countries have largely come to a halt, which may adversely affect China's tire production bases in Southeast Asia.

The supply-side tension quickly spread to the futures market, where rubber futures became a "barometer" of market sentiment. Driven by both panic and concern, the main rubber futures price soared by nearly 3%, closing at 15,585 yuan at midday. This sharp price increase is not just a numerical change; it also signals a major shift in the rubber market structure and sounds an alarm for the downstream tire industry.

The sharp rise in rubber prices has dragged the tire industry chain into a brutal squeeze between "costs and sales."

Manufacturing side: The countdown to raw material costs eroding profits has begun
Rubber is the primary raw material for tires, accounting for 35%-45% of the production cost of a standard all-steel tire. Based on the current increase in rubber prices, the rise in raw materials alone will directly push up tire production costs by 8%-10%. For small and medium-sized manufacturers already under pressure from meager profits or even losses, the increase in raw material prices is nothing short of a fatal blow.

In this context, the downward trend in tire prices seems set to pause. Some stronger manufacturers may have already started re-evaluating product prices, considering whether to announce increases. For tire manufacturers, maintaining a reasonable profit margin is fundamental to their survival and development. Continuing to sell tires at previous prices would undoubtedly lead to huge losses.

Based on past experience, cost pressure is the most reasonable reason for price hikes. Under cost pressure, the price trend of the tire market in the third quarter may take three forms:

Channel side: A deep game between overstocked inventory and expectations of price rises and falls
Despite the cost pressure on manufacturers, raising prices is no easy task given the current market situation. Currently, tire sales are sluggish, with severe overstocking in channel inventory.

"Our warehouse still has goods from the end of last year that haven't been sold yet," a provincial tire distributor in North China said bluntly. "If manufacturers raise prices now, my first thought is to clear my existing inventory at a low price to avoid risks."

This mindset is widespread: in an environment of poor sales and high inventory, it is inevitable for dealers to resist price increases. Once a price hike is announced, it may lead to "price inversion" (where channel selling prices are lower than manufacturers' new ex-factory prices), exacerbating market chaos.

Thus, tire manufacturers face a dilemma when confronted with cost pressure. Raising prices may lead to loss of market share, while not raising them will result in squeezed profits or even losses.

The difficulty in raising prices is essentially a profound reflection of the industry's weak pricing power. Most enterprises in China's tire industry, which are engaged in fierce competition in the quagmire of homogenization, lack the core leverage to pass on costs. Costs that cannot be smoothly transmitted will ultimately further compress industry profits and accelerate the elimination of weak enterprises.