Mainland Chinese Truck Market Remains Bearish with Supply Chain Shocks



Mainland Chinese medium- and major-responsibility trucks (MHDTs) have
entered a bear market because mid-2021. Although the current market staged a
slight restoration adhering to the easing of electric power shortages and
injection of coverage stimulus from late very last calendar year, surprising
headwinds introduced by the Russia-Ukraine disaster and domestic Omicron
outbreak plunged the industry back into weakness in the 2nd
quarter of 2022. Amid pandemic-induced lockdowns in Jilin and
Shanghai, manufacturing of MHDT hit the most affordable studying for April more than
a 10 years. In our Could forecast, we downgraded the mainland Chinese
MHDT production for 2022 by 5% to 1.13 million models, a decline of
23% when compared with 2021.

Exterior geopolitical tensions drive up producer prices

As uncooked supplies symbolize 20-30% of the cost of output for
large vans, raw substance expenses partially determine the
profitability of truck producers. Owing to the global economic
restoration from the COVID-19 scare, commodity price ranges have
been through an upcycle due to the fact late 2020. The rally acquired far more steam
in the 1st quarter of 2022 with the outbreak of the
Russia-Ukraine war. Particularly, the cold-rolled metal price that
accounts for over 60% of the overall uncooked content expenditures for a significant
truck surged by 3% in March 2022 from the level of January,
expanding the development to far more than 40% as in comparison to the exact
period of 2020. Also, the diesel cost lifted by 15% and handed the
RMB9,000 for each metric ton mark as a result of January-March 2022. In
contrast, the movement of marketing rates for significant trucks were being
fairly flat underneath slack demand, as gas cost inflation elevated
the functioning expenditures although oversupplied trucking constrained freight
rate advancement. As a result, the truck producers’ obtaining and
selling costs logged important differentiation, in spite of an
increase in price tag of CN6-level styles. These weak inflation
pass-via influence has manufactured truck makers to bear the brunt of the
earnings margin squeeze especially immediately after dumping of CN5-amount vans.
With the Russia-Ukraine crisis predicted to deepen into 2023,
small-time period truck output is for that reason minimize by all-around 25,000 units
in the Might outlook.

Inner pandemic resurgences exacerbate offer chain

The Omicron wave had activated huge lockdowns in Jilin
Province (March 11-April 28), Shenzhen Metropolis (March 14-20), and
Shanghai Town (March 28-May 31) due to the fact March 2022, ensuing in
prevalent enterprise disruptions and logistics snarls. Though
there are several MHDT brands in the epicenters of the pandemic,
Changchun City and Shanghai Metropolis host above 40 major supply bases
serving core elements to mainstream types covering 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
process, but labor shortages underneath the mobility management disabled
them to function at standard potential. Meanwhile, rigorous
containment measures these types of as website traffic restrictions, nucleic acid
test and quarantine specifications, as effectively as closure of toll
stations pent up highway freight desire and prompted wider repercussions
of part shortages, which in transform dampening truck generation.
Beneath the circumstances, the whole loss of MHDT generation in the
next quarter is believed to access 100,000 models. With ramping up
attempts to sleek logistics and restore small business, the perform
resumption amount of enterprises previously mentioned designated measurement in Shanghai
Metropolis enhanced to 96% by mid-June and will totally recover from July.
Coupled with expansionary procedures and sufficient capability
reserves, these could guidance MHDT creation to choose up and offset
the pandemic-induced loss in the second 50 percent.

A even more downgrade to outlook is underneath assessment, as the
government’s reliance on the “dynamic zero-COVID” tactic and
funds outflows led by the Fed’s tightened cycle are very likely to
weaken company sentiment and subdue need recovery. On the other
hand, the rebuilding of vendor inventories of CN6-level MHDTs
climbed from 280,000 units in early this 12 months to 380,000 models by
April, way greater than the typical charges of 150,000-170,000 models.
Additionally, there have been much more than 70,000 models CN5-degree new
trucks (sold as used vans) remaining in the marketplace, exacerbating
de-stocking pressures.


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


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


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