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Chinese tyre makers set for higher costs under new rubber standard

[BEIJING] Chinese tyre makers are braced for an increase in costs next month when Beijing adopts a new standard for compound rubber, with analysts doubting it will be delayed or scrapped despite repeated calls by industry.

That will add to companies' problems after the United States levied anti-dumping duties on Chinese tyre exports, pushing some firms closer to failure and raising concern about a drop in rubber demand from the world's biggest consumer.

Compound rubber, a mix of natural rubber and a small amount of powdered carbon, has been widely used by Chinese tyre manufacturers in recent years as it is not subject to the import tariffs placed on pure natural rubber.

However, Beijing said in December it would change the formula for the compound, capping the amount of natural rubber allowed at 88 percent. That would make the compound more complex to manufacture and probably curb its use significantly.

In March, parliamentary delegate Guo Guangchang, also billionaire chairman of conglomerate Fosun International Ltd, called for the new standard to be scrapped.

The government met with industry earlier this month to discuss the issue, raising speculation it would be delayed.

But analysts said Beijing was likely to push ahead with the change, aimed at helping domestic rubber producers such as Hainan Rubber Industry Group raise their prices. "The probability (of a delay) is quite small," said Quan Shuwen, an analyst at the Shanghai office of Japanese brokerage Okachi.

With Shandong province, which accounts for more than half of China's tyre output according to the provincial government, offering low-interest loans to the industry among measures to boost its economy, central government will see little need to offer them further help, she said.

China's standards administration could not be reached for comment. China Rubber Industry Association President Deng Yali declined comment on the issue.

Even if the new standard is delayed, few rubber companies are likely to invest in the equipment needed to make the formula, given the relatively long pay-back time on the investment, said a rubber buyer at a Chinese-based firm who declined to be identified.

Tyre makers will therefore have to import natural rubber if necessary and pay duties of 1,500 yuan (US$242) per tonne.

Some small to medium-sized companies are already struggling because of severe overcapacity, said Wang Yulian, an analyst at commodities information service Zhuochuang.

So the introduction of the new standard, even if it wasn't the main factor, "may accelerate bankruptcy", she said.