4/26/2017

1

Global tyre market outlookGlobal tyre market outlook

Robert Simmons

LMC Internationalwww.lmc.co.uk rsimmons@lmc.co.uk

Forecasts Services Independent

LMC is the leading economic & business consultancy for the tyre, rubber and automotive industries

About LMC

• Rubber− Natural rubber− Synthetic rubbers

• Tyres− Sales & production− Size segments− LVs & MHCVs− Motorcycles

• Off-the-shelf reports• Bespoke consulting• Event presentations• Webinars

We do not produce, trade or broker.

LMC’s analysis and advice is entyrely objective.

2 Confidential

• Automotive− Sales & Production− Engine/Transmission− LVs, MHCVs & Buses− Market trend analysis

Oxford Detroit New York Frankfurt Kuala Lumpur Bangkok Singapore Shanghai

4/26/2017

2

Future Tyre industry Outlook

Future tyre demand is determined by:• OE tyres

R l t t (th l t t) d d• Replacement tyres (the largest segment) depend upon:

• Vehicle parc (vehicles in use)

• Replacement ratio (how often tyres are replaced)

Both OE and replacement tyre sales are dependent upon on vehicle densities (vehicles per 1,000 population)

Future tyre production

3 Confidential

Future tyre productionTyre trade then determines where tyres are produced.

Import duties are changing global trade and production patterns

GDP per capita determines tyre demand

USA

900

1000

Light vehicle densityRapid growth Mature

MexicoRussia Taiwan

KoreaMalaysia

UKJapan

Spain GermanyFranceItaly Canada

400

500

600

700

800

900

o of

LV

per 1

,000

pop

ulat

ion

4 Confidential

IndiaIndonesia

China

ThailandTurkeyBrazil

Mexico

0

100

200

300

0 10,000 20,000 30,000 40,000 50,000 60,000GDP per Capita

N

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3

Emerging markets were the engine of growth but this has slowed

The world changed after financial crisis of 2008/09

10% 10% 8%5 years of slowing growth

2000-12 2010-18

0%

2%

4%

6%

8%

GDP

grow

th (%

)

0%

2%

4%

6%

8%

GDP growth (%

) 3%

4%

5%

6%

7%

GDP

grow

th (%

)

y g g

World

Emerging Markets

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-4%

-2%

2000 2002 2004 2006 2008 2010-4%

-2%

Advanced Emerging World

0%

1%

2%

2010 2012 2014 2016 2018 2020

Advanced

Boost to growth

Growth in the emerging markets has not been uniform

10%

12%

Emerging market growth is picking up in 2017

0%

2%

4%

6%

8%

10%

GDP

grow

th

Emerging

Slow down Asia first

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-4%

-2%

%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019India CIS China S America

Slow down Asia first then Brazil and Russia

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4

Growth trends in NA and Western Europe started to weaken in 2016; hugegain in China caused by tax incentive. Softening looks set to go further in2017, but other markets to take up some slack.

World2.1%

4.6%

2015 2016

Global Vehicle market – 7th year of growth

North America

Asia-Pacific minus China

C&E EuropeWestern Europe

China

2%

6%2%

9%6%

-13%

0%

5%

12%

2015 2016

2015 20162015 2016

2015 2016

7 ConfidentialSource: LMC Automotive

ChinaSouth America-1%

-12%

2015 20162015 2016

-21%

Year-on-year change in Light Vehicle sales volume (thousands)

Asia-Pacific 3.3 mn

China +3,100kIndia +220k

Which markets moved most in 2016?

Western Europe

North America

C&E Europe

Italy +290kGermany +170k

Mexico +250k

Russia -180kPoland +70k

Czech Rep. +30k

8 ConfidentialSource: LMC Automotive

MEA

South America

+500kZero-500k +1,000k +1,500k

Brazil -490k

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The pre-2017 themes of expansion in North America, Western Europe andChina are expected to begin to dissipate this year, while signs of recoveryin Brazil and Russia are also expected to begin to emerge.

World

2.1%4.6% 2.4%

15 16 17F

Global Vehicle market, now for 8th year of growth

North America

Asia-Pacific minus China

C&E EuropeWestern Europe

China6%2% 0%

15 16 17F

9%6%

2%

15 16 17F

-13%

0%

2%15 16 17F

5%

12%

2%

15 16 17F

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ChinaSouth America

Source: LMC Automotive

-12%

6%

15 16 17F

-1%

2% 3%

15 16 17F

For the tyre market, emerging market vehicle sales build parc

Emerging markets• Rapid growth of vehicle sales

leading to parc growth (and hence replacement tyre sales growth) 50

60

600

700

Emerging v developed markets

growth)

Developed markets• Vehicle sales largely for parc

enhancement, little growth in vehicle parc.

• Ageing vehicle parc, average age of vehicles is increasing

20

30

40

50

LV sa

les (

mn

units

)

300

400

500

600

LV parc (mn units)

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With rising vehicle sales and an increasing parc, tyre market growth is dominated by the emerging markets

0

10

2000 2003 2006 2009 2012 2015100

200

Emerging DevelopedEmerging Developed

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6

Mature markets: steady LV replacement tyres sales growth

115

00)

13.2 4.0

Strong link between miles driven and fuel price

100

105

110

lace

men

t tyr

es sa

les (

2006

= 1

0

12.4

12.6

12.8

13.0

Mile

s per

veh

icle

('00

0)

2.0

2.5

3.0

3.5 Real fuel price ($ per gallo

11 Confidential

90

95

2006 2008 2010 2012 2014 2016

LV re

pl

US EU

12.0

12.2

2000

2002

2004

2006

2008

2010

2012

2014

2016

1.0

1.5

n)

Miles per vehicle Fuel price

Tyre sizes and speed rating

100%

60

70US Car tyre imports US tyre warranty: Speed rating

40%

60%

80%

Impo

rts (

%)

20

30

40

50

60

Tyre

war

rant

y

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0%

20%

2001 2004 2007 2010 2013

<14 14 15 16 17 17+

0

10

S/T H V WYZAll season Winter

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MHCV replacement tyres sales growth linked to GDP

35 55%

Fall in retreads has boosted replacement sales

USA115

00)

5

10

15

20

25

30

Repl

acem

ent S

ales

(mn

units

)

25%

30%

35%

40%

45%

50%

Retreads % Total Replacem

ent Sa85

90

95

100

105

110

lace

men

t tyr

es sa

les (

2006

= 1

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0

5

2000

2002

2004

2006

2008

2010

2012

2014

2016

20%

25%

ales

Replacement Sales Retreads (MTD)Retread %

70

75

80

2006 2008 2010 2012 2014 2016

MHC

V re

pl

EU US

China, expanding parc points to higher replacement sales

25,000 60,000

e)

30%

Vehicle sales 4,8,12 yrs ago (given 4 yr replacement cycle) point to substantially higher sales in 2017 and 2018

10,000

15,000

20,000

PC sa

les (

'000

uni

ts)

20,000

30,000

40,000

50,000

ativ

e ve

hicl

e sa

les (

4 ye

ar cy

cl

10%

15%

20%

25%

Growth (%

)

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0

5,000

1999 2002 2005 2008 2011 2014

0

10,000

2015 2016 2017 2018 2019 2020

Cum

ul

0%

5%

Vehicle sales (4 yr cycle) Growth rate

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But emerging markets miles driven per vehicle are falling

95

1004.4

35

40

Brazil China

60

65

70

75

80

85

90

Mile

s per

veh

icle

(199

6 =

100)

3.4

3.6

3.8

4.0

4.2 Real fuel price (R$ per litre)

15

20

25

30

35

'000

km

per

Veh

icle

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50

55

60

2006

2008

2010

2012

2014

2016

M

3.0

3.2

)Miles per vehicle Fuel price

0

5

10

2003 2005 2007 2009 2011 2013 2015

Brazil: replacement sales are recovering

Sale

s

es

LV replacement tyres MHCV replacement tyres

zil L

ight

Veh

icle

Rep

lace

men

t S

Braz

il M

HCV

Repl

acem

ent S

ale

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2011 2012 2013 2014 2015 2016

Braz

Moving Average Annual

2011 2012 2013 2014 2015 2016

Moving Average Annual

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Russia: also recovering

lions

)

ales

LV replacement tyres MHCV replacement tyres

V Re

plac

emen

t Tyr

e Sa

les (

Mill

ght V

ehicl

e Rep

lace

men

t Tyr

e Sa

17 Confidential20

06

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

MHC

VMoving Average Annual

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Lig

Moving Average Annual

Indian market has picked up

45

50 14

s)

35%

LV tyre production MHCV tyre replacement sales

15

20

25

30

35

40

45

Tyre

s (m

illio

ns)

4

6

8

10

12

plac

emen

t Tyr

e Sa

les (

mn

units

10%

15%

20%

25%

30%

Radial Tyre Production (%

18 Confidential

0

5

10

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Moving Average

0

2

2005/062007/082009/102011/122013/14

Rep

0%

5%

%)

Rep Tyre Sales Radialisation %

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With a growing parc

emerging markets lead replacement tyre market growthLV

repl

acem

ent t

yre

sale

s

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Mature Emerging

Increasing volumes of tyres are traded

700

800

90

100

Tyre trade as grown at 4% per annum over the last ten years

300

400

500

600

00

LV ty

re tr

ade (

mn

units

)

50

60

70

80

90

MHCV tyre trade (m

n un

20 Confidential

0

100

200

2000 2002 2004 2006 2008 2010 2012 2014 2016

L

20

30

40

nits)

Light Vehicle MHCVExcluding intra EU trade

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11

Imported tyres are for the replacement market

80%

90%s

Imports are a particulary high proportion of replacement sales in the US

30%

40%

50%

60%

70%

rts %

repl

acem

ent t

yre s

ale

21 Confidential

0%

10%

20%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Impo

r

US LV US MHCV EU LV EU MHCV

Increasing use of duties to protect industry

US duties on China have switched importing origins and have global implications

14 35%US LV tyre imports

4

6

8

10

12

Mon

thly

impo

rts (

mn

units

)

10%

15%

20%

25%

30%

China % total (%

)

22 Confidential

0

2

2007-2009 Safeguarding duties(Sept 2009-Sept2012)

No Duties 2012-2014 Anti-dumping,countervailing duties

(Nov 2014-)

M

0%

5%

ASEAN China East Asia EUNAFTA South America China %

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12

Increasing use of duties to protect industry (continued)

The proportion of Chinese LV tyre imports has increased in the EUEU LV tyre imports

10

12s) 50%

60%

2

4

6

8

10

Mon

thly

impo

rts (

mn

units

10%

20%

30%

40%

50%

China % total im

orts

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02007-09 Safeguarding

duties (Sept 2009 -Sept 2012)

No duties (2012-2014)

Antidumping,countervailing

duties (Nov 2014 -)

0%

China East Asia ASEANRussia/Serbia/Turkey Americas OtherChina % total

US LV tyre capacity is expanding

40

50

ons)

10

20

30

40

mul

ativ

e Ca

mpa

city

(mill

io

24 Confidential

-10

0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Cu

Bridgestone Continental Cooper GITI Tire Goodyear HankookKumho Sentury Sumitomo Toyo Other

4/26/2017

13

Europe capacity increases in low cost areas

10

15

20

25Ca

paci

ty (M

illio

ns)

Russia

10

20

30

40

50

ve C

apac

ity (M

illio

ns)

EU

-5

0

5

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Cum

ulat

ive

Michelin Continental Pirelli YokohamaCordiant Bridgestone Nokian

14

16

ns)

Turkey

-20

-10

0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Cum

ulat

iv

Apollo Tyres Bridgestone Continental CooperGoodyear Hankook Michelin NexenNokian Pirelli Other

14

16

ns)

Serbia

25 Confidential

0

2

4

6

8

10

12

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Cum

mul

ativ

e Ca

paci

ty (M

illio

Bridgestone Sumitomo Rubber Industries

0

2

4

6

8

10

12

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Cum

mul

ativ

e Ca

paci

ty (M

illio

Cooper Michelin

Tariffs affected US market in 2016

16

1 6

1.8

70%

80%

MHCV tyre imports Monthly MHCV tyre imports

6

8

10

12

14

Impo

rts (

mn

units

)

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Mon

thly

impo

rts (

mn

units

)

20%

30%

40%

50%

60%

70%

Import tariff on China(%

)

26 Confidential

0

2

4

2010 2011 2012 2013 2014 2015 2016China Non-China

0.0

0.2

0

Avg'

16F'

16 M A M J J A S O N DJ'1

7 F M

0%

10%

China Non-China Import duty

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14

Chinese tyre exports

IndiaWorld

LV By country

na L

ight

Veh

icle

Tyr

e Ex

port

s

Africa

East AsiaMiddle East

EuropeN Africa

ASEANS America

India

27 Confidential

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Chin

Moving Average Annual

-30% -20% -10% 0% 10% 20% 30% 40%

NAFTAE EuropeOceania

Change in Exports

Chinese manufacturers are expanding outside of China

50

60

(mill

ions

)

6

7

8

(mill

ions

)

LV MHCV

0

10

20

30

40

2013 2015 2017 2019 2021

Cum

ulat

ive

Cam

paci

ty (

0

1

2

3

4

5

6

2013 2015 2017 2019 2021

Cum

ulat

ive

Cam

paci

ty (

28 Confidential

Shandong Yinbao Tyre GroupShandong O'Green TyreShandong Linglong RubberSentaida GroupSailun TyreQingdao Fullrun TyreHangzhou Zhongce Rubber

Shandong Yinbao Tyre GroupShandong O'Green TyreShandong Linglong RubberSailun TyreHangzhou Zhongce RubberDouble Coin

4/26/2017

15

Summary: light vehicles

North America

South America

North America

South America

Vehicle sales Tyre sales

ASEAN

China

East Asia

India

Europe

Eastern Europe

Middle East

North America

ASEAN

China

East Asia

India

Europe

Eastern Europe

Middle East

North America

29 Confidential

-10% -5% 0% 5% 10% 15%

World

ASEAN

Change in LV sales (%)

2016 2017

-2% 0% 2% 4% 6% 8% 10% 12%

World

ASEAN

Change in LV tyre sales (%)

2016 2017

Summary: Trucks

North America

South America

North America

South America

Vehicle sales Tyre sales

ASEAN

China

East Asia

India

Europe

Eastern Europe

Middle East

North America

ASEAN

China

East Asia

India

Europe

Eastern Europe

Middle East

North America

30 Confidential

-15% -10% -5% 0% 5% 10% 15%

World

ASEAN

Change in MHCV sales (%)

2016 2017

-2% 0% 2% 4% 6% 8%

World

ASEAN

Change in MHCV tyre sales (%)

2016 2017

4/26/2017

16

Thank you!