Raw Materials
Bridgestone has announced that it will raise the prices by between 3 and 6 per cent of its consumer, commercial and speciality tyres in Europe during October 2010. Bridgestone Europe CEO and president Makio Ohashi said that “historically high” raw materials prices had necessitated the hike, while “further increases will be necessary in the coming year”.
From Continental’s perspective, sales across the EU in the truck tyre replacement market are up 29 per cent versus the same timeframe last year, with the UK figure said to be up 5.5 per cent, a few percentage points less than other estimates. Raw materials are still increasing, with the knock-on effect of pushing tyre prices up. Supply is also expected to be tight in the second half, as tyre manufacturers are struggling to meet the increase in demand (and cope with the shortage of raw materials). “We are also seeing a high level of hire vehicle utilisation which could lead to vehicle shortages towards the end of the year,” company representatives told Tyres & Accessories recently.
Morgan Stanley analysts have upgraded Michelin shares to “overweight” and more than doubled their target price from 36 – 80 euros, commenting that the French tyre manufacturer “can surprise again.” This means analysts believe Michelin will beat consensus earning projections by more than a fifth: “We expect earnings to come in 20-25 per cent above consensus and cash generation to surprise significantly.”
In an investors note published 25 August, Morgan Stanley’s Eduardo Spina explained that the upgrade is based on the fact that while Michelin stock trades at a roughly 25 per cent discount historically, “high earnings visibility” and pent-up demand contribute to making it attractive. As a result Spin predicts that earnings per share will ramp up to 10 euros by 2012, 25 per cent above the consensus of 8 euros by the same point.
Rubber prices have reached their highest level in more than three months, in part due to concern that rainfall in key producing countries will reduce supply of the commodity. Heavy rain is expected across Thailand, the world’s number one producer, and a La Nina weather event may persist in Southeast Asia until at least the end of this year.
Analysts at Morgan Stanley have upgraded their target price for Continental stock following second quarter results that were 10 per cent higher than consensus, while reducing net debt by 220 million euros to 8 billion. “We feel comfortable bringing our ’10 EPS to 4.92 euros and increasing ’11 and ’12 EPS by 25-35 per cent…We believe Conti shares will benefit as the debt refinancing continues – but we cannot justify an overweight rating with only 18 per cent upside potential to our price target. Moreover, numerous unknown factors, including risks related to Schaeffler’s continued 75.1 per cent dominance over the company, keep us on the sidelines,” the bank’s analysts wrote in an investor’s note published on 30 July.
Fly ash recycling technology firm RockTron has announced it will launch RockTron Asia at the IGEM Conference in Malaysia between 17 and 24 October. Malaysia will provide the British company’s first Asian facility, which will be able to recycle 100 per cent of both fresh and stockpiled coal-fired power station waste (otherwise known as fly ash) through its closed wet system, without any waste stream, according to the company. The processed “eco-minerals” can be used to manufacture tyre rubber filler, as a company representative explains: “RockTron’s product MinTron is a filler for tyre rubber and costs a fraction of the market price (approximately 25-40 per cent less). The amount destined for tyre application is limited to how much a client wishes to order (i.e. it is limitless). Our UK plant at fiddlers ferry is capable of recycling 800,000 tonnes of fly ash and turning it into fillers for rubber in tyres.”
For Bridgestone, the first half of the 2010 financial year presented an operating environment “plagued by rising prices for raw materials.” Yet, despite these challenges, the Japanese tyre maker saw signs of a slight recovery in its domestic market plus a gradual recovery in the US and accelerated recovery in Asia and particularly in China. Bridgestone acknowledges that conditions in Europe remain “challenging”, but notes that the business climate there showed signs of bottoming out. In these operating conditions, Bridgestone states that during the six months to June 30, 2010 it stepped up efforts to improve manufacturing productivity, increase sales of highly competitive products, strengthen supply capacity and effectively utilise its management resources.
Maxxis has honoured its three decade long relationship with ExxonMobil Chemical (EMC) by naming it as a Best Supplier. Maxxis has purchased butyl products, used in the manufacture of its tyres, from ExxonMobil Chemical for more than 35 years and the award recognises the two companies’ history of joint technology development as well as EMC’s leading–edge technology and advanced technical support.
As Tyres & Accessories has reported on its tyrepress.com website, Michelin has recently secured a number of aircraft tyre supply deals. The French manufacturer was named the sole tire supplier for the Bombardier CSeries family and was chosen by Air France and KLM to equip their commercial aircraft. It has also been selected by Turkish Airlines, as well as by Russia’s Sukhoi to supply original equipment tyres exclusively for its SSJ100 Regional Jet. In addition, Michelin has been awarded an exclusive contract to provide original equipment tyres for the Gulfstream IAI G250, due to be launched in late 2010, and its tyres are in the process of being certified by Embraer for its E-170/175 family of airliners.
Marangoni Retreading Systems has announced that it will implement its third price increase this year on the tread rubber tyre retreading materials (and related products) it sell to the tyre retreading industry. According to an official statement published on 3 August, the prices will be increased by up to 12 per cent with immediate effect in Europe. Marangoni’s management said the increase is due to “sharp rises in the prices of raw materials.”
Analysts at Deutsche Bank have upgraded their rating for Michelin shares to “Buy” following first half 2010 financial results that were better than expected. The results published on 30 July show that revenues were up 17 per cent, mostly driven by volume growth of 15 per cent. According to the analysts, this was “by far the main earnings driver” since raw material price increases had no negative impact on first half results due to a lag effect. Overall first half 2010 operating income (822 million euros) virtually caught up with the firm’s full-year 2001 operating profit of (862 million euros).
Looking forward, the company’s management is now aiming for a full year operating margin of close to 9 per cent (1.5 billion euros), underscoring that in the second half the group should be able to more than offset a raw materials price headwind of 650 million euros.
The Sibur Group has sold tyres through its Sibur-Russian Tyres subsidiary for the past eight years, but now it has also turned its attention to other vehicle components. In late June the group’s “Plastic JSC” operation signed a letter of intent with the Sollers group, a Russian manufacturer that produces Fiat, Isuzu and SsanYong vehicles under licence. The focus of the letter is to indentify the main direction future cooperation between these two parties could take in respect to the production and supply of automotive components.
Market analysts at Morgan Stanley have predicted a “robust second quarter results season characterised by rebounding volumes and cost savings.” The volume of sales, which are reported to have improved from the low base of 2009, is said to be tyremakers’ biggest tailwind, but the increased cost of raw materials are also expected to kick-in in the manufacturers’ second quarter reports.
Raw materials are estimated to add a headwind of 300 – 440 basis points to the tyremakers’ margins, a trend that Morgan Stanley expects to accelerate through the rest of the year. Crucially, Morgan Stanley’s view is that while some of the numerous prices increases implemented up till now “are likely to feed through to the bottom line already,” they are note expected to cover more than a third of the input cost burden this quarter.
Data and estimates from the Association of Natural Rubber Producing Countries (ANRPC) indicate global supply of natural rubber will grow this year at a slower rate that previously anticipated. Forecasts based on preliminary estimates and reports available up to mid-June point to a 5.2 per cent growth, lower than the 6.3 per cent rate anticipated in March and 6.1 per cent rate anticipated in May.
A recent article written by Joel Mayor Loran and published by the Granma and Periodico publications in Cuba gives a fascinating insight into the workings of the country’s National Rubber Company – Poligom. According to the article, which is entitled “How to Save a Million Dollars” the Cuban retreading operation has been facing a scarcity of raw materials and retreadable casings.
The Poligom National Rubber Company reportedly runs five factories specialised retreading work, which retreaded 56,900 tyres in 2009. However, the lack of stability in the supply is said to have affected plans to increase production to 90,000 in 2010. In the year to 10 June the retread companies located in the municipality of Cotorro in Havana City, in the central province of Las Villas, and in the eastern provinces of Camaguey, Holguin and Santiago de Cuba received 34,000 casings, 6,000 less than expected.
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