Mainland Chinese Truck Market Remains Bearish with Supply Chain Shocks

Raymond S. Hughes

Mainland Chinese medium- and significant-duty trucks (MHDTs) have
entered a bear market considering the fact that mid-2021. Although the market staged a
slight restoration pursuing the easing of power shortages and
injection of plan stimulus from late last year, unforeseen
headwinds introduced by the Russia-Ukraine crisis and domestic Omicron
outbreak plunged the market place back into weak point in the second
quarter of 2022. Amid pandemic-induced lockdowns in Jilin and
Shanghai, generation of MHDT strike the least expensive reading for April about
a decade. In our May forecast, we downgraded the mainland Chinese
MHDT generation for 2022 by 5% to 1.13 million units, a drop of
23% as opposed with 2021.

Exterior geopolitical tensions travel up producer costs

As raw resources characterize 20-30% of the price tag of output for
hefty vehicles, raw material expenses partly determine the
profitability of truck producers. Owing to the world financial
restoration from the COVID-19 scare, commodity price ranges have
gone through an upcycle considering that late 2020. The rally gained more steam
in the first quarter of 2022 with the outbreak of the
Russia-Ukraine war. Specially, the cold-rolled steel price that
accounts for above 60% of the complete uncooked content expenditures for a weighty
truck surged by 3% in March 2022 from the stage of January,
increasing the expansion to much more than 40% as as opposed to the exact same
period of time of 2020. Also, the diesel selling price elevated by 15% and handed the
RMB9,000 for every metric ton mark via January-March 2022. In
distinction, the motion of advertising rates for heavy vans ended up
alternatively flat underneath slack demand, as gasoline price tag inflation elevated
the running charges although oversupplied trucking constrained freight
charge growth. As a result, the truck producers’ getting and
promoting selling prices logged substantial differentiation, regardless of an
increase in price of CN6-level models. This sort of weak inflation
go-via outcome has made truck makers to bear the brunt of the
earnings margin squeeze especially soon after dumping of CN5-stage vans.
With the Russia-Ukraine disaster envisioned to deepen into 2023,
brief-expression truck manufacturing is consequently reduce by around 25,000 units
in the May perhaps outlook.

Interior pandemic resurgences exacerbate provide chain

The Omicron wave had triggered huge lockdowns in Jilin
Province (March 11-April 28), Shenzhen City (March 14-20), and
Shanghai City (March 28-May well 31) considering that March 2022, ensuing in
widespread enterprise disruptions and logistics snarls. Despite the fact that
there are several MHDT makers in the epicenters of the pandemic,
Changchun Town and Shanghai City host more than 40 significant offer bases
serving main parts to mainstream styles masking above 90% of
truck generation. Setting up from mid-April, FAW Jiefang’s Changchun
plant and most suppliers managed to resume get the job done in the shut-loop
procedure, but labor shortages below the mobility control disabled
them to purpose at ordinary ability. Meanwhile, rigorous
containment measures these types of as targeted traffic restrictions, nucleic acid
test and quarantine demands, as well as closure of toll
stations pent up street freight demand and prompted broader repercussions
of part shortages, which in change dampening truck generation.
Underneath the conditions, the overall loss of MHDT generation in the
2nd quarter is estimated to arrive at 100,000 units. With ramping up
attempts to sleek logistics and restore small business, the function
resumption fee of enterprises above specified measurement in Shanghai
Town improved to 96% by mid-June and will absolutely get better from July.
Coupled with expansionary guidelines and enough potential
reserves, these could assistance MHDT manufacturing to decide on up and offset
the pandemic-induced loss in the next 50 %.

A additional downgrade to outlook is beneath evaluation, as the
government’s reliance on the “dynamic zero-COVID” technique and
cash outflows led by the Fed’s tightened cycle are most likely to
weaken business enterprise sentiment and subdue desire recovery. On the other
hand, the rebuilding of vendor inventories of CN6-amount MHDTs
climbed from 280,000 units in early this yr to 380,000 units by
April, way bigger than the typical fees of 150,000-170,000 units.
Moreover, there ended up a lot more than 70,000 models CN5-stage new
vehicles (offered as utilised trucks) remaining in the market place, exacerbating
de-stocking pressures.


Posted 06 July 2022 by Cassie Liu, Automotive Analyst, IHS Markit&#13


This short article was posted by S&P World-wide Mobility and not by S&P Global Rankings, which is a individually managed division of S&P World wide.

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