Recent flooding in Thailand has had less impact on natural rubber prices than may have been inspective. Deutsche Bank research shows that the impact on rubber supply has been “quite muted” and flooding around key plantations is not severe. As a result the spot price for natural rubber has reportedly continued its declining trend, hovering around US$4/kilo – a level last seen in March 2011.
Natural rubber prices should average $5/kg, $5.10/kg and $4.50/kg in 2011, 2012, 2013, respectively, according to a recent Deutsche Bank report. The stabilisation of prices that have been skyrocketing for the last few years is predicted as the Association of Natural Rubber Producing Countries, whose members produce 92 per cent of the world's supply, is expected to expand production by about 6.3 per cent in 2011. Production will grow another 6 per cent in 2012. Global production was about 10.4 million metric tonnes in 2010.
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.
Analysts believe that China’s tyre industry will face a severe test in the second half of this year. According to the China Rubber Industry Association (CRIA) statistics, in the first six months of 2011 member companies’ tyre production totalled 128 million units, of which 107 million were radial tyres. This represents year-on-year growth of 1.6 […]
Shares in Cooper Tire & Rubber Company hit a new 52-week low on Monday 12 September trading at $10.36, below the previous 52-week low of $10.50. According to a report at thestreet.com, Cooper Tire & Rubber has a market capitalisation of $696 million and shares were down 53.6 per cent year-to-date at the close of trading on Friday 9 September.
The deal is done and a new tyre company has been born, thanks to the formalization of the proposed joint venture agreement between Groupe Michelin, Double Coin Holdings Ltd. and Shanghai Huayi (Group) Co. The newly minted Double Coin Group (Anhui) Warrior Tires Co. will produce Warrior brand passenger and light truck/SUV tyres, some of which will reach the North American market next year.
The Western European car market grew 8 per cent in August despite being down 1 per cent year-to-date. This marks a significant improvement on July which was down 1.5 per cent. According to research produced by Deutsche Bank, August is usually the lowest month of the year with around 750,000 units sold.
The price of steel price has dropped US$120-130/tone in Europe (North European HRC) since March and now sites around $730-770/ton level (515 – 540 euros/ton), according too financial analysts. Writing in an investor’s note dated 30 August, Deutsche Bank explained its view of that the market has stabilised in the medium term market: “We expect current prices to remain more or less stable in the second half of 11 and for full year 2012.”
Financial analysts have raised their estimates for Yokohama Rubber after reviewing their raw material assumptions. Their rationale is that, “while not as smoothly as peers, Yokohama Rubber is passing costs on to customers, and despite uncertainties (downturn in US/Europe), we expect it to report 30 per cent growth in adjusted full year…earnings on lower raw material prices and full-year contributions from price hikes.”
The latest data from the US shows that shipments, what we might call sell-in sales, of light vehicle replacement tyres fell 12 per cent for RMA members and 10 per cent for the overall industry in July. This follows falls of 8.6 per cent in June and 10.7 per cent in May. Commenting on the figures, Deutsche Bank analysts pointed out that “the weakness was significantly more pronounced for broadline (economy) tyres,” with volumes down more than 20 per cent year-on-year in this segment.
Maurice Taylor, chairman and CEO of Titan International has sought to add clarity to forecasts of what is happening in the agriculture, construction and mining markets by pointing out that the firm expects to receive three-digit millions of dollars worth of orders: “I’ve had a number of shareholders and analysts call and e-mail asking what’s going on in the farm, construction and mining markets…The majority of these e-mails show concern as to why there’s not more positive guidance going out from the big boys in equipment manufacturing for 2012…”, he explained, adding:
The second quarter was tough, but look out for a rebound in the second half of 2011. That’s the view of Morgan Stanley analysts with reference to Cooper Tire’s dramatic recent share performance. Reducing the company’s price target from $30.00 to $27.00, the company re-iterated our overweight rating saying the tyre manufacturer shares offer “compelling value following [the] recent [stock] sell-off.”
Analysts at Morgan Stanley have reported their “surprise” at Goodyear’s performance in the second quarter of the financial year. The reason they gave for being caught unaware by the US tyre maker’s 24 per cent increase in sales (to US$5.6 billion) and 66.7 per cent rise in net profit (to $40 million) is that “it came in a quarter of weak shipments and rising raw material headwinds.” Despite unit demand being slightly down, Goodyear’s price/mix of $552 million “comfortably beat” Morgan Stanley’s estimate of $450 million and segment operating income for its North American Tire business was $137 million with a margin of 5.7 per cent, which Morgan Stanley notes is the highest level in a decade and in line with the company’s medium-term target.
Despite the fact that both Continental and Michelin reports second quarter/first half pre-tax profits (EBIT) broadly in line with expectations, financial analysts have highlighted the “difference in momentum” between the two firms’ results. According to Morgan Stanley, the intraday spread between the two stocks was 600 basis points when the results were announced on Friday 29 July.
“Although we think Michelin can surprise positively in the second half, in the shorter term Conti should outperform thanks to improving momentum in consensus earnings,” Morgan Stanley’s Edoardo Spina commented, explaining the differential.
Following the publication of second quarter/first half 2011 financial results showing Pirelli doubled net profits year-on-year, financial analysts have lauded Pirelli “over any other auto part or tyre maker in EU.”
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