Mainland Chinese Truck Market Remains Bearish with Supply Chain Shocks



Mainland Chinese medium- and heavy-duty vans (MHDTs) have
entered a bear market considering the fact that mid-2021. Even though the current market staged a
slight restoration pursuing the easing of power shortages and
injection of coverage stimulus from late previous calendar year, unanticipated
headwinds introduced by the Russia-Ukraine disaster and domestic Omicron
outbreak plunged the market back into weak spot in the second
quarter of 2022. Amid pandemic-induced lockdowns in Jilin and
Shanghai, manufacturing of MHDT strike the cheapest reading through for April above
a decade. In our May perhaps forecast, we downgraded the mainland Chinese
MHDT production for 2022 by 5% to 1.13 million models, a drop of
23% in comparison with 2021.

External geopolitical tensions push up producer prices

As uncooked materials symbolize 20-30% of the price of production for
heavy trucks, raw materials expenses partly decide the
profitability of truck producers. Owing to the global financial
restoration from the COVID-19 scare, commodity price ranges have
undergone an upcycle considering that late 2020. The rally attained much more steam
in the initially quarter of 2022 with the outbreak of the
Russia-Ukraine war. Specifically, the chilly-rolled metal price that
accounts for about 60% of the overall raw material expenditures for a significant
truck surged by 3% in March 2022 from the level of January,
increasing the development to much more than 40% as when compared to the similar
period of time of 2020. Also, the diesel cost elevated by 15% and handed the
RMB9,000 for each metric ton mark as a result of January-March 2022. In
distinction, the motion of offering prices for weighty trucks had been
relatively flat underneath slack desire, as gas value inflation elevated
the operating prices while oversupplied trucking constrained freight
amount progress. As a final result, the truck producers’ paying for and
selling charges logged considerable differentiation, irrespective of an
raise in price tag of CN6-amount designs. This sort of weak inflation
move-as a result of influence has manufactured truck makers to bear the brunt of the
gain margin squeeze specifically just after dumping of CN5-stage trucks.
With the Russia-Ukraine disaster anticipated to deepen into 2023,
shorter-time period truck manufacturing is for that reason minimize by around 25,000 models
in the May perhaps outlook.

Interior pandemic resurgences exacerbate provide chain

The Omicron wave experienced activated substantial lockdowns in Jilin
Province (March 11-April 28), Shenzhen City (March 14-20), and
Shanghai Town (March 28-May perhaps 31) given that March 2022, ensuing in
popular business disruptions and logistics snarls. While
there are number of MHDT companies in the epicenters of the pandemic,
Changchun Metropolis and Shanghai City host about 40 massive supply bases
serving main components to mainstream versions masking over 90% of
truck creation. Starting from mid-April, FAW Jiefang’s Changchun
plant and most suppliers managed to resume perform in the shut-loop
program, but labor shortages beneath the mobility management disabled
them to perform at usual capability. Meanwhile, demanding
containment measures these as website traffic limitations, nucleic acid
examination and quarantine demands, as effectively as closure of toll
stations pent up street freight demand from customers and brought on wider repercussions
of component shortages, which in transform dampening truck creation.
Beneath the situations, the complete reduction of MHDT generation in the
second quarter is estimated to achieve 100,000 models. With ramping up
initiatives to easy logistics and restore company, the perform
resumption fee of enterprises over selected dimensions in Shanghai
City enhanced to 96% by mid-June and will thoroughly recover from July.
Coupled with expansionary insurance policies and ample capability
reserves, these could assist MHDT creation to decide on up and offset
the pandemic-induced loss in the 2nd 50 %.

A even further downgrade to outlook is beneath evaluation, as the
government’s reliance on the “dynamic zero-COVID” approach and
funds outflows led by the Fed’s tightened cycle are possible to
weaken company sentiment and subdue demand restoration. On the other
hand, the rebuilding of dealer inventories of CN6-degree MHDTs
climbed from 280,000 units in early this yr to 380,000 models by
April, way bigger than the typical premiums of 150,000-170,000 units.
Also, there had been more than 70,000 models CN5-stage new
vehicles (offered as made use of trucks) remaining in the market place, exacerbating
de-stocking pressures.


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


This post was published by S&P Worldwide Mobility and not by S&P World Scores, which is a independently managed division of S&P World-wide.


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