The price of natural rubber has fallen by 11 per cent from the peak reached a month ago, say analysts at the Deutsche Bank. However, at US$ 2.5/kg, natural rubber is still up 40 per cent year to date and 50 per cent more expensive than synthetic rubber.
Goodyear Tire & Rubber Company will cut more than 150 positions in its European business unit in order to create annual savings in selling, administrative and general expenses of over $10 million. âConcurrent with efforts to grow our top line through innovative new products and marketing, we are intensely focused on reducing the company’s global cost structure,â said Goodyear chairman and CEO Robert J. Keegan. âOur objective is to achieve cost reductions totalling between $750 million and $1 billion by 2008, including $150 million to $200 million in SAG (sales administration and general) costs.â
Nokian Tyresâ new HP 5 winter tyre has been well received in the market and pre-season sales have started well. According to a Deutsche Bank report analysts believe this and price increases are good signs for the companyâs performance in the second, third and fourth quarters. Nokian is reported to have stirred up the market by taking market share by aggressive pre-season sales in the second quarter of last year before being âhit by competitionâ in subsequent quarters. âHowever, it seems the biggest pressure is now behind us due to the sharp increase in raw material prices. Management commented that most competitors have announced price hikes for the winter season and that these look likely to stick,â the report concluded.
European passenger car sales grew 12 per cent during May (up 2.5 per cent year-to-date), while the truck tyre market is said to have grown 17 per cent (up 1 per cent year-to-date). Deutsche Bank analysts report that the figures sourced from Michelin point to a completely different story in North America.
Deutsche Bank analysts lowered their estimates on Goodyear and Cooper following what the was reportedly an âabysmal Aprilâ for the US tyre business. âAnecdotal reports from our tyre industry contacts suggest that US replacement tyre demand was down again in May following an abysmal April (-9.6 per cent). Weak demand comes at a bad time for tyre producers, many of which were already brimming with finished goods inventory at the end of the first quarter and experiencing huge spikes in raw material costs,â the analysts reported.
Analysts at the Deutsche Bank are upgrading Goodyear shares to “Hold” from “Sell”, saying that Goodyear shares have experienced a material correction since the bank lowered its recommendation to Sell in January. In the short term, the analysts say that they continue to see earnings risk associated with very weak demand, which may force Goodyear to idle factories in order to bring down inventories.
Japanese domestic tyre shipments rose 1.3 per cent year-on-year in March, to 11.865 million units. This was the same increase as recorded in February and, according to Deutsche Bank analysts, suggests that demand for studless tyres has levelled out. This comes after heavy snowfall and anticipation of tyre price increases buoyed growth in December (+13.9%) and January (+9.6%).
Following the news that Continentalâs Bahia, Brazil plant is officially open, analysts have reported that the companyâs decision to increase production in âlow-costâ countries could save between 100 and 110 million US dollars. According to Deutsche Bank, this calculation is based on average per worker production of 6000 tyres/annum against â10 times lowerâ labour costs compared with the US. The report also suggested that the additional transportation/logistics costs incurred are equivalent two US dollars per unit.
Michelinâs budget for raw material costs is expected to increase by 11 per cent year-on-year in 2006. However, Deutsche Bank analysts report that natural rubber is up 15 per cent so far this year. âNatural rubber (RSS3) represents 25 per cent of raw material (24 per cent of sales or 4 billion euros), therefore should the natural rubber stay at these levels this would imply a discrepancy of around. 75 million euros on budgeted margins,â the analysts explained.
Due to very weak North American tyre demand in the first quarter 2006 Deutsche Bank recommends its sell rating for Goodyear shares and put Cooper stock on âHold.â
Cooperâs recent 2005 results may have shown full-year losses, but they also show that the companyâs inventories would have been $125.6 million (41 per cent) higher âhad they used FIFO instead of LIFO.â The results have implications on the way other companyâs results are interpreted. âAs a result, we would expect a substantial earnings impact from raw material cost inflation in the quarters ahead,â Deutsche Bank analysts said referring to Goodyear.
Deutsche Bank analysts are more optimistic than the management when it comes to predicting future results. The analysts forecast that Sumitomo will achieve 13 per cent more operating profit than the management predicts. âWorking off our newâŠforecasts and historical 12-month valuations we lower our target price from 1,700 yen to 1,500 yen but maintain our Hold rating,â the report commented. âHowever, we still think it may only just sustain single-digit profit growth given the significant pull impact of rising input costs,â they added.
Deutsche Bank analysts are predicting that Continentalâs operating profit will increase by as much as 35 per cent in the companyâs fourth quarter results. They expect sales to reach 3,610 million euros, up 4.5 per cent on the same period last year. Deutsche Bank predicts profits will peak at 431 million euros, up 35 per cent against the market consensus of 390 million euros. This is put down to the reduction of exceptional charges levelled at the company â last year this reached 100 million euros in the fourth quarter.
Fourth quarter financial figures from wheel manufacturer Accuride were âsomewhat disappointing,â according to Deutsche Bank pundits. Sales were up two per cent, against an expected 11 per cent. Lower volumes and high aluminium prices were cited as the reasons. The analysts are lowering their estimates for 2006 for Accuride, but are maintaining their âHoldâ rating.
Sales of cars in China during January were better than expected, according to figures from Deutsche Bank. At 307,000 units, this was a 70 per cent increase year on year, due partly to the pull forward effect of the Chinese New Year. Analysts forecast volume growth during this year of 53 per cent for passenger cars, with a string of new models in the pipeline, including the Honda Civic, Peugeot 206, Citroen C3, Nissan Silphy and MPV.
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