Product Price Increases Fail to Offset Rising Costs; Raw Material Price Fluctuations May Continue to Put Pressure on Zhongce Rubber Operations

Originally from: Economic Reference Daily

Xinhua Finance Beijing, March 17 — (Reporter Lu Yuan’an) In March 2026, the domestic tire industry will experience a new round of intensive price increases. Leading industry player Zhongce Rubber Group Co., Ltd. (referred to as “Zhongce Rubber,” 603049.SH) issued a price adjustment notice, effective from March 16, raising prices across its entire loader tire product line. The company stated that the adjustment “significantly lags behind cost increases” and did not rule out further price adjustments in the future. Notably, this is Zhongce Rubber’s second product price adjustment notice since September 2025, when some products’ prices were raised. As a newly listed company on the Shanghai Stock Exchange main board since June 2025, the market’s attention on Zhongce Rubber has shifted beyond the short-term impact of rising costs to concerns about ongoing risks such as cash flow pressure and high short-term debt amid the rising cost cycle.

Planning to Launch Futures Hedging Business

Industry experts generally believe that this round of widespread tire price hikes is a collective response to rising raw material costs—including natural rubber, synthetic rubber, and carbon black—as well as increasing logistics costs. As of March 16, over 30 domestic tire companies had announced price increases, with hikes mainly between 2% and 5%.

To cope with this cost pressure, Zhongce Rubber has taken additional measures besides raising product prices. On March 13, the company announced plans to conduct futures hedging for natural rubber, synthetic rubber, and related commodities to effectively hedge against raw material price fluctuations. The maximum margin and option premium involved are expected not to exceed 600 million yuan. This proposal was approved at the 14th meeting of the company’s second board of directors but still requires shareholder approval before implementation.

The announcement states that the hedging period will be 12 months from the date of shareholder approval, with funding from the company’s own funds, not involving fundraising. The operation’s purpose is strictly limited to hedging raw material price risks, not for profit-making.

Regarding performance, Zhongce Rubber’s 2025 Q3 report shows that its profit scale remains among the industry’s top, but cash flow from operating activities—reflecting the company’s core cash-generating ability—has declined significantly. In the first three quarters of 2025, Zhongce Rubber achieved revenue of 33.683 billion yuan, up 14.98% year-over-year; net profit attributable to shareholders was 3.513 billion yuan, up 9.30%. In Q3 alone, net profit was 1.191 billion yuan, up 76.56%, demonstrating strong profit resilience.

However, during the same period, net cash flow from operating activities was only 830 million yuan, down 62.01% from 2.185 billion yuan in the same period of 2024. This downward trend was evident earlier in 2025, with the semi-annual report showing a net profit of 2.322 billion yuan in the first half, but operating cash flow was only 12.39 million yuan, a 99.13% drop from 1.424 billion yuan in the same period of 2024.

Zhongce Rubber explained that the decline in cash flow was mainly due to increased payments for purchasing goods and services. Data shows that in the first three quarters of 2025, payments for goods and services reached 23.499 billion yuan, a 51.12% increase from 15.549 billion yuan in the same period last year, far exceeding the revenue growth rate.

Additionally, rapid growth in accounts receivable has also impacted cash inflows. As of September 2025, accounts receivable totaled 7.712 billion yuan, up 27.78% from the beginning of the year. Industry insiders believe that as the annual report disclosure approaches, rising raw material costs combined with the cash flow pressure in the first three quarters have led investors to closely watch whether the company can effectively ease its subsequent funding pressures.

High Level of Current Liabilities

The decline in operating cash flow has heightened market concerns about Zhongce Rubber’s debt management capabilities, especially as short-term debts are maturing in large amounts, potentially increasing repayment pressure amid rising costs.

Financial reports show that although IPO fundraising provided nearly 4 billion yuan in equity capital, the company’s total liabilities remained high. As of September 2025, total liabilities reached 26.938 billion yuan, with a debt-to-asset ratio of 52.73%.

Looking at the debt structure, Zhongce Rubber’s high proportion of current liabilities is notable. The financial report indicates that as of September 2025, current liabilities totaled 23.035 billion yuan, including short-term borrowings of 6.754 billion yuan and non-current liabilities due within one year of 2.96 billion yuan. Meanwhile, the company’s cash and cash equivalents stood at 5.559 billion yuan.

Meanwhile, the company’s capacity expansion continues to require significant capital expenditure. In the first three quarters of 2025, net cash outflow from investing activities was 2.658 billion yuan, an increase of 683 million yuan compared to the same period last year, mainly for projects such as the Changzhou Jintan New Energy Tire Plant in China and a factory in Mexico.

Furthermore, Zhongce Rubber and its subsidiaries plan to provide an additional guarantee limit of 9.911 billion yuan for their wholly owned subsidiaries in 2026, raising concerns about increased debt risks. The company disclosed on December 5, 2025, that the total guarantee limit for 2026 is expected to be up to 9.911 billion yuan, including guarantees for subsidiaries with a debt-to-asset ratio of 70% or higher, amounting to 2.76 billion yuan.

As of October 31, 2025, the total guarantees provided by Zhongce Rubber and its subsidiaries to other subsidiaries amounted to 1.595 billion yuan, accounting for 9.13% of the latest audited net assets. Zhongce Rubber stated that these guarantees are for wholly owned subsidiaries within the consolidated scope, and the company can effectively control and prevent guarantee risks without harming the interests of the company or shareholders.

Industry analysts expect that, under current geopolitical tensions, fluctuations in the prices of core raw materials such as crude oil and natural rubber will likely persist, putting ongoing cost pressures on the industry. For Zhongce Rubber, product price adjustments may help offset some of the cost increases and ease operational pressures. However, expanding guarantee exposure amid intensified industry competition could increase the company’s overall financial risks. The company’s 2025 annual report, as well as subsequent developments in cost control, cash flow improvement, and debt risk management, will continue to be closely monitored.

Editor: Zhang Yao