Natural Rubber Price Could Force 2% Increase from Tyre Companies

Natural rubber cost increases of 60 per cent during the course of 2009 could force tyre manufacturers to increase selling 2 per cent. Current prices of US$ 2.4/kg (RSS3 grade, according to SICOM) compare with a recent low of US$ 1.5/kg last January, and US$ 3.2/kg in June 2008. Average prices reached US$ 2.3/kg in 2007, US$ 2.8/kg in 2008 and are expected to fall around the US$2.0/kg mark for 2009.

According to financial analysts at Deutsche Bank the recent surge is due to inventory build up from tyre companies; the weakness of the US dollar; and recent flooding in Indonesia, which is responsible for 15 per cent of the world’s natural rubber production. Writing in an investor’s note dated 13 October, the analysts reported that natural rubber costs represent approximately 8 per cent of sales of leading tyre makers. This equates to an estimated 550 million euros for 2009 in Continental’s case; 1.2 billion euros for Michelin; 60-65 million for Nokian Tyres and 400 million euros for Pirelli. Therefore if rubber stays at current levels the industry would have to increase selling prices by approximately 2 per cent to offset the added cost, say the analysts.