The Effects of Raw Material Price Increases

Minekazu Fujimura, CEO of Bridgestone Europe has warned that China’s production explosion is causing a severe shortage of steel cord, natural rubber and other raw materials, essential to tyre production.

Mr Fujimara told the Financial Times that the shortage has already driven up tyre manufacturers’ raw material costs by between 10 and 15 per cent, adding that further increases were inevitable. But it isn’t all bad. In the short term, Mr Fujimura conceded, the supply problems were proving to be financially beneficial. So far this year, the leading tyre producers have been able to raise their prices three times in acknowledgment of the rising cost problem.

As a result the big producers have reported improved results. Bridgestone itself has just reported operating income of $983m on sales of $12.6bn in the first three quarters. Goodyear this week reported a profit of $36.1m for the third quarter, its second successive quarterly profit after a long period of losses.

But Mr Fujimara is not resting on his laurels. “The problem is global and there is no escape from it. We have no choice but to pay the premium,” he said adding that the increases are likely to have a wider impact. “They will be working their way through into higher car prices,” said Mr Fujimura.