Report Points to “Remarkable Growth in Tyre Markets”

In an analysts report published at the end of last year (17 December) financial analysts surveying the market on behalf of Morgan Stanley found that replacement light vehicle tyre markets were very strong in Europe and North America and grew by 15 per cent and 6 per cent respectively in November last year. The figures were based on research conducted by Michelin, which was published the same day.

The analysts characterised the results of the research as “remarkable figures given the tough competition last year (Europe was up 9 per cent and North America by 10.5 per cent).” The positive sales are likely to have been prompted by strong demand for winter tyres (especially in Europe) at the end of 2010.

Michelin’s market report fond that China was a very strong with a 38 per cent increase in sell-in volumes compared with a 21 per cent increase the previous November. The South American market increase of 15 per cent was also deemed to be higher than expected.

Truck tyre replacement markets also surprised with 14 per cent growth in Europe and a 24 per cent increase in North America, a 9 per cent rise in China and 33 per cent growth in Brazil.

Commenting on the results, the financial analysts pointed out that they are a “very positive sign for the industry, particularly Michelin.” However, the market watchers also suggested they disagree with market views suggesting that increasing raw materials on increasing volumes is a bearish sign for the industry. In their view it is “just in line with history,” Morgan Stanley’s analysts commented adding: “We assume Michelin will be able to recover 70 – 80 per cent of the raw material inflation over 2010 to 2012 and will surprise with its earnings progression driven by 5-8 per cent volume growth per year in 2011 and 2012.”

As a result the analysts reiterated their preference for Michelin shares in the tyre sector and recommend investors buy before the company releases its second half 2010 financials on 11 February.

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