Improved Natural Rubber Prices Could Ease Manufacturing

If the current raw material price trend continues, it could help improve margins at Goodyear Tire & Rubber Co. (GT) and Cooper Tire & Rubber Co. (CTB) by the end of the year or early next year, according to analyst. Natural rubber, which accounts for about a quarter of tyre raw material costs, is down over 20 per cent from the all-time high it hit earlier this year.

Talking to Continental executive board member, Dr Hans-Joachim Nikolin suggested that while natural rubber price relief was welcome it was unlikely to cancel out the increased prices of steel and other oil-linked raw material prices like synthetic rubber and carbon black.

Duetsche Bank analysts highlighted the fat that natural rubber recently fell below $2.0/kg – January 2005 levels. This is an almost 30 per cent drop from peak reached 2.5 months ago. “Since spot price has a four to six months lag effect in tyre companies profit and loss, natural rubber purchasing bills could be for the first time in 2007 lower than in 2006,“ the analysts observed.

According to Deustche Bank, Michelin is the most sensitive company to natural rubber price variation. In 2006 their natural rubber-purchasing bill (1.4 billion euros) is expected to be equivalent to their EBIT (1.3 billion euros).