Michelin Initiates Prices Increases

Michelin has reported that it has begun raising prices for its truck and construction equipment tyres in Europe to help compensate for higher commodity costs, particularly natural rubber. The price increases, which average 3 per cent to 5 per cent, began in mid- June, said Anne-Sophie Creton, a spokeswoman.

Michel Rollier, chief executive of Michelin, said last month that it was becoming harder for the company to reach its 2006 profit goal because rubber prices have increased 55 percent this year. The company is seeking earnings of 8.8 percent of sales, the same level as last year, as tyre price increases and production cost cuts balance rising raw material prices.

Analysts have questioned whether or not Michelin will meet its full year operating profit target of a stable 8.8 per cent margin. At the beginning of the year company management expected a 10 per cent raw material price increase, since then the target has risen to +15 per cent.

According to Deutsche bank officials, the strong increase of natural rubber prices (+60 per cent year-to-date) means that raw materials price increase could be as much as 20 per cent. “Since the group is determined to increase selling prices to fully offset raw material price increase (already two sets of price increase in Europe this year), there is a risk that full-year guidance might not be met. Not because operating profit needs to be downgraded but because top line needs to be upgraded (consequence of numerous prices increase),” the analysts commented.