Tyre makers tipped to reap benefit of price rises, lower rubber costs in 2012

In their daily automotive sector report, analysts at Deutsche Bank observe that while most tyre companies budget a natural rubber price of US$5.00 per kilogram for 2011, the current price for the commodity is, at $4.20 per kilogram, 15 per cent below this planned-for figure. As natural rubber purchasing costs account for between 13 and 18 per cent of sales, they posit that recent declines in the price of natural rubber could “have a meaningful impact” on next year’s tyre maker earnings, assuming – the analysts add, that the industry retains similar discipline to that it has demonstrated in the last few years.

At the same time, tyre manufacturers are expected to feel the “full effect” of this year’s price increases or the equivalent of an incremental price increase of approximately two per cent. Deutsche Bank analysts believe that higher selling prices and lower raw material prices “could have a nice tailwind on tyre company earnings in 2012 and should more than offset weaker volumes.”