Fluctuations in raw material prices may lead to continued operational pressure for Zhongce Rubber

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In March 2026, China’s tire industry experienced a new round of widespread price increases. Leading industry player Zhongce Rubber Group Co., Ltd. (referred to as “Zhongce Rubber,” 603049.SH) issued a price adjustment notice, raising prices across all loader tire series starting March 16. The company stated that this 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 timing of this notice—just about a month before the release of its 2025 annual report—has drawn market attention not only to the short-term impact of rising costs but also to ongoing or worsening risks such as cash flow pressure and high short-term debt amid the rising cost cycle.

Plans to Conduct Futures Hedging Business

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

To cope with this cost impact, 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 approval from shareholders’ meeting 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 resources, not involving fundraising. The operation’s purpose is strictly limited to hedging raw material price risks, not for profit.

In terms of performance, Zhongce Rubber’s 2025 Q3 report shows that the company’s profitability remains among the industry leaders, but cash flow from operating activities—reflecting the company’s core operational 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 already evident in the first half of 2025, when the company’s interim report showed net profit of 2.322 billion yuan, but operating cash flow was only 12.39 million yuan—down 99.13% from 1.424 billion yuan in the first half of 2024.

Regarding the reasons for the cash flow decline, Zhongce Rubber explained in its financial report that it was mainly due to increased cash payments for purchasing goods and receiving services. Data shows that in the first three quarters of 2025, cash paid 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 growth rate of revenue.

Additionally, rapid growth in accounts receivable has become an important factor affecting cash inflows. As of the end 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 and the pressure on cash flow in the first three quarters have led investors to closely monitor whether the company’s subsequent funding pressures can be effectively alleviated.

High Level of Current Liabilities

The decline in operating cash flow has also heightened market concern over Zhongce Rubber’s debt management capabilities, especially as short-term debts mature in clusters, 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 debt remains relatively high. As of the end of September 2025, total liabilities reached 26.938 billion yuan, with an asset-liability 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 amounted to 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; at the same time, the company’s cash and cash equivalents stood at 5.559 billion yuan.

Meanwhile, the company’s capacity expansion has continued to require 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 overseas.

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 debt risks. On December 5, 2025, the company disclosed that the guarantee limit for 2026 was expected to reach 9.911 billion yuan, including guarantees for subsidiaries with a debt-to-asset ratio of 70% or higher, amounting to 2.76 billion yuan.

The announcement states that 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. The company emphasized that these guarantees are for wholly owned subsidiaries within its consolidated scope, and that it can effectively control and prevent guarantee risks without harming the interests of the company or shareholders.

Industry experts expect that, under current geopolitical tensions, volatility in the prices of core tire raw materials such as crude oil and natural rubber will persist. For Zhongce Rubber, product price adjustments may help offset some cost increases and ease operational pressures. However, in a highly competitive industry environment, expanding guarantee exposure could increase overall financial risks. The company’s 2025 annual report, as well as ongoing efforts in cost control, cash flow improvement, and debt risk management, will continue to be closely monitored.