High prices and low costs benefit manufacturers

High sales prices matched with lower input costs are combining to the benefit of tyre manufacturers. A report from Deutsche Bank analysts notes that, despite weak tyre volumes in the European replacement markets (-10 per cent in passenger tyres, -30 per cent in truck tyres) tyre companies are benefitting from a strong pricing effect (+4 per cent to +5 per cent) and from low raw material prices.

This is said to be particularly true for natural rubber, the price of which has sunk to a new 12 month low at US$3.1/kg, significantly below what tyre companies paid in 2011 (US$4.6-4.8/kg) and what was initially budgeted for 2012 (US$4.0-4.1/kg).

In 2011, natural rubber purchasing bill represented 14 per cent of revenues at Continental Tyre, Michelin and Pirelli and eight per cent at Nokian. In 2012, earnings are getting a massive boost from higher selling prices and lower raw material prices, more than offsetting weak volumes. The analysts expect tyre earnings to post a double digit increase this year.