CW takes a closer look at the lucrative tyre industry in the GCC region.
In the present global economic scenario, the automotive sector in the UAE and the robust economics of other GCC countries provide a market for ´profit consolidation´ given the low yields from the European automotive sector. According to a TechSci Research report, favourable government regulations, logistics infrastructure and real-estate growth are boosting the tyre market. Economic variables such as per-capita income, crude oil prices and import-export competence coupled with growing foreign investments are making the tyre market prime for expansion. A look at the major growth drivers for tyres in the GCC region allows us to understand the demands along with the latest trends and technology available.
In the automotive sector, Dubai has emerged as a leading supplier of tyres, tubes and batteries to many international markets. The main advantage is the city´s tag as a logistics hub and its strategic location connecting it with the other GCC markets. It boasts of a well-organised retail and wholesale sector, with the tyre exports and re-exports business being a major contributor to trade with the GCC region. The total trade in tyres in Dubai is valued at around $1.5 billion. Tyres worth about $400 million for buses and lorries are imported to Dubai every year, mainly from China, Japan and India. And, almost 65 per cent of these tyres are re-exported to regional markets with the balance sold through retail outlets for local consumption.
As the Dubai market is expected to grow about 30 per cent in the next five years, the industry has gained prominence. The main demand is from the commercial segment considering the fact that Dubai has the highest rate of car ownership than any other city in the world. But as the city prepares to host ´Expo 2020´, the frenzy of infrastructure construction activity is also pushing up the demand for OTR tyres. Further, the absence of railway connections in the Arabian Peninsula forces most of the overland transport via roads, making it a high-volume sales territory for tyre manufacturers.
The major driver of demand for tyres in Qatar is the large-scale infrastructure building and construction in progress for the biggest sporting event in the world, FIFA World Cup 2022. Demand is also fuelled by brutal climatic conditions that decrease the shelf life of tyres to around one-and-a-half years. So with less product life, new development exercises and continuous infrastructural activity, the demand for commercial and OTR tyres will increase. The commercial vehicle market in Qatar is forecast to grow at a CAGR of over 13 per cent from 2015 to 2020, according to a recently released TechSci Research report, Qatar Commercial Vehicles Market Forecast & Opportunities 2020.
As one of the most prosperous countries in the GCC and globally, its over-95-per-cent urban population has allowed automobile sales to grow at breakneck speed. Hot and humid climatic conditions necessitate a shorter replacement period of around one-and-a-half years for tyres, driving demand in both the OEM and replacement markets.
The steady increase in the demand for automobiles along with an equally growing demand for retreaded tyres in the replacement market will propel the industry in Kuwait over the next five years. The tyre market in Kuwait was projected to grow at a CAGR of around 11 per cent during 2014.
The UAE consumer tyre market imports about 2 million units worth about $80 million every year. However, the truck tyre market, an important segment of the UAE market, is worth $160 million and the UAE imports about 400,000 units every year. The total market value of the tyre market in the UAE is estimated at $240 million. Urban communities in the UAE like Dubai, Abu Dhabi and Sharjah, are among the main interest generators.
The Saudi Government is also promoting the tyre industry in the western and central regions owing to infrastructural development. Growing industrialization and increasing investments in the country are likely to push further demand for automobiles and tyres over the next five years. In addition, demand is also increasing because of the foray of technologically improved tyres, which provide more fuel-efficiency and vehicle safety. Low-cost tyres procured from Chinese players occupy a large chunk in Saudi Arabia, especially within the unorganised sector. But with world-class tyre players enjoying a strong presence in the organised market, the sale of Chinese brands is likely to diminish in the coming years on account of rising consumer demand for premium branded tyres.
According to the TechSci Research report, Saudi Arabia Tyre Market Forecast & Opportunities 2019, the market in Saudi Arabia is estimated to grow at a CAGR of 17.19 per cent in value terms till 2019. Growing automobile sales, rising automobile fleet, encouraging government policies and increasing foreign investments in the automotive sector along with infrastructure development are the major demand drivers. Increasing industrialisation, new investments, shorter tyre replacement cycle and rising commercial vehicle sales are set to influence the growth trajectory of the market in Saudi Arabia.
Material handling equipment is a regular sight in the GCC region where majority of the countries are in the midst of a heavy infrastructure revamp. The equipment that mostly accounts for the OTR segment of the tyres requires customised solutions, especially with regard to its usage in the region.Construction equipment is typically exposed to steaming hot asphalt, daylong UV radiation, shifting centre of gravity, heavy loads, 24-hour operation and harsh weather conditions along with advancements in equipment technology, putting a much greater demand on tyres.
Tyres need to be capable of handling loads, speeds and demands of advanced equipment and withstand wear-and-tear by climatic agents. Today´s tyres offer everything from heat resistance and increased longevity to the new focus towards rolling resistance. Finding a good balance of all these performance criteria is critical.
Despite the contracted income in 2014, most tyre makers saw higher net revenues. This sentiment continues in 2015, reflected in the falling cost of elastic and slight decrease in tyre costs. Tyre cost performed more steadily than expenses despite dropping. Now, the market is poised for growth; according to a report by Frost & Sullivan, the GCC market for auto parts, batteries, and tyres will grow at a CAGR of 14.9 per cent to reach $13.46 billion by 2017.
With the presence of global heavyweights, the regional tyre industry is also throwing up challenges. In recent times, many Dubai-based tyre dealers have launched their own brands. Armed with a loyal clientele, the tyre dealers cater to the rising demand for good quality tyres at reasonable prices in the regional and international markets serviced by Dubai.
Not to be left behind, the market leaders, keeping in mind the reliable after-services provided by dealers, have expressed interest in tying up with premium service delivery dealers to ensure smooth entry into a diverse market. Although enticing, the market has to bear in mind the necessary trade regulations and code of conduct according to the prevailing cultural and political scenario.
As the tyre market in the GCC region gains in stature and size, new entrants are trying to jostle for position. And the best way to showcase one´s products is at specialised industry-centric expos.
The Automechanika trade exhibition, recently held in Dubai, witnessed a strong contingent of tyre dealers and manufacturers from across the globe showcasing their products to increase market share in this lucrative market. Such expos bring the entire industry under one roof and have a great impact on tyre deals in the region.
The growth-driven economy and rising infrastructure projects serve as fodder to the ´tyre´ as a product.
The need to depend on dealers to enter this market can be viewed as a weakness as it stretches out the time it would take to build one´s base directly.
The unique weather conditions that lower the shelf life of tyres present an opportunity to innovate for better quality specific to these conditions.
The ever-changing strict rules and policies could get a major player banned from the market in case of a wrong move politically or culturally.