ETRMA: All segments except truck tyres down in 1H 2013

In June 2013 almost all tyre segments outperformed the same period last year, according to sales data released by European industry body ETRMA on 16 July. Winter tyres were said to be the exception to this rule, but no further details have yet been given. One perhaps surprising observation is that markets with weaker economies in Southern Europe are actually performing better than the more established DACH or Scandinavian regions “In southern Europe, the consumer cannot delay any longer change of tyres. We seem to have reached the bottom”, ETRMA secretary general, Fazilet Cinaralp commented. However as good as bottoming out may be for future prospects of an upturn, in the short term is said to be bad news for input suppliers.

In June truck replacement tyre demand continued its positive development (+6%), with truck OE tyre demand said to be “quite stable”. Agricultural tyre sales (agro) were also positive in June (+4%) and, once again, the market was described as “stable”.

In the first half of the year sales things didn’t look so rose. Consumer, agriculture and motorcycle tyre sales (including scooters) fell between 4 and 6 per cent. Truck tyres however moved roughly the same amount (5 per cent) in the distinctly more positive opposite direction. Despite the mixed news, ETRMA expects the market to reach 2012 figures at the year end. 

Source: ETRMA Europool

Analysts question 2H recovery thesis, ETRMA data bad news for tyre suppliers, reduces pricing power

Analysts highlighted the fact that continued decline in tyre demand is bad news for companies supplying components and raw materials to tyre manufacturers. In an investor’s note published on 18 July and entitled: “Weak tyre demand keeps synthetic rubber producers under pressure”, Moody’s Investor Service analyst Elena Nadtotchi assessed the impact of the ETRMA data. Interestingly for the tyre business, the investor’s note contradicted ETRMA’s optimism for a second half demand pickup: “Replacement tyre sales in Europe were declining since the end of 2011 and many market participants expected tyre demand to recover in the second half of 2013, but we believe demand will remain depressed, if up versus the first half of the year which will offer little immediate support to SBR volumes.”

“We estimate the replacement market accounts for approximately 70 – 80 of all tyre sales in Europe and other developed markets, while tyre sales in emerging markets are driven by new car sales.

Weak customer demand is credit negative for producers of styrene butadiene rubber, or SBR, including Lanxess AG (Baa2 stable), Trinseo Materials Operating S.C.A. (B1 negative), OJSC Nizhnekamskneftekhim (NKNK) (Ba3 positive), Sibur Holding, OJSC (Ba1 stable) and, to a lesser degree Ashland Inc. (Ba1 stable)”.

Her point was that this reduces tyre manufacturer suppliers’ pricing power and drives down segment revenues. For example Lanxess reported an 18 per cent on-year decline in segment sales in the first quarter, the investor’s note explained.

Falling demand has driven down the price of key chemicals that are used for tyre production, such as SBR and its key feedstock butadiene (BD). According to ICIS, since the start of 2013 US and European spot BD prices have fallen approximately 41 per cent and the Asian spot BD price is now down 51 per cent. Similarly, prices for synthetic rubbers that are usually linked to the feedstock prices are also falling, with European spot SBR 1500 prices down approximately 12 per cent and US spot SBR 1502 prices approximately 30 per cent since the start of 2013.

According to Moody’s this is because as well as declining demand there is now an oversupply of SBR because many producers including NKNK, Trinseo and Lanxess added significant capacity in 2012/13 to address future demand from emerging markets and in response to record prices and strong volumes in 2009-2012. 

The investor’s note concluded with more bad news for the input suppliers: “SBR producers may also face more pricing pressure in the second half of the year because feedstock prices have also continued to decline as a result of weak demand and oversupply of butadiene due to the recent addition of extra new capacity by Asian producers.”