Rubber Prices No Longer a ‘Tailwind’ for Tyre Makers

The fact that natural rubber prices have rebounded 25 per cent to US$2.1/kg for RSS3 in the last month means raw material prices that had been assisting tyre manufacturers are no longer a “tailwind.” The news is forcing analysts such as Deutsche Bank revise their earnings estimates as they had mostly factored in the possibility that that tyre companies would pass a portion of this raw material price benefit onto their vehicle making customers. However, with the current boost in rubber prices behind them the 33 – 50 per cent of the so-called rubber tailwind they may have pencilled to share with the OEMs is not likely to be erased.

Since 75 per cent of tyre demand comes from the aftermarket, analysts expect tyre manufactures to keep most of the benefit of the lower prices they have been experiencing in advance of the prices hikes kicking into their balance sheets in six months time. As a result of this and improved sell-in sales, profit margins are expected to increase.

Rubber represents a significant portion of the purchasing cost for tyre companies. According to Deutsche Bank, 56 per cent of Michelin’s and 50 per cent of Pirelli’s purchasing bill is made up of rubbers.