Raw material costs declining: DB report

A March 11 report from DB Equity Research Automotive observes that the cost of “certain key raw materials” used by tyre manufacturers have begun to decline. The Deutsche Bank equity research team states: “Most notably, we estimate that natural rubber prices have declined by nine per cent since last Friday…and rubber has declined by approx. 15 per cent (from the $2.45-$2.50/lb level) since US tyre companies reported their Q4 results. If this decline in natural rubber costs is sustained, total raw material costs could decline by 4.0 per cent compared with Deutsche Bank estimates.”

The report also shows light vehicle replacement tyre shipments in the US to have increased 1.2 per cent year-on-year during February for Rubber Manufacturers Association members and 5.4 per cent year-on-year for the overall industry. The Deutsche Bank automotive equity research team comments that “while the increase is modest versus the 12.8 per cent year-on-year seen in January, we would note that January shipments likely contained some pre-buying ahead of recent price increases. We also noted that the comparison against February ‘09 (+17.0 per cent) was significantly harder than January ‘09’s +8.3 per cent comparison. Overall, we continue to expect FY’11 industry growth in the three per cent range.”