Raw Materials
Hankook Tire America Corp. is raising prices by up to 8 per cent on its full line of passenger, high performance and light truck tyres and up to 5 per cent on its medium duty truck tyres. The amount of the increase will vary by product line and/or size, and will take effect July 1.
The increase in prices reflects the industry’s sharply rising costs for raw materials and energy consumed in manufacturing and distribution, Hankook said.
Prices for tread rubber products charged by Bridgestone Bandag Tire Solutions (BBTS) to its franchised dealers in the US have increased by up to 5 per cent, effective May 5. “Unprecedented energy prices continue to impact our costs, particularly for raw materials and transportation,” said Saul Solomon, president of BBTS. No corresponding price increase took place in the Canadian market.
An increase in net sales of 10.9 per cent has been reported by Yokohama Rubber for the fiscal year ending March 31, 2008. This figure is slightly higher than the recently revised projection of 10.6 per cent and equates to 551.4 billion yen (£2.74 billion). Operating income, at 33.1 billion yen (£164.77 million), was up 57.2 per cent, again slightly higher than the projected figure (56.6 per cent). Net income, at 21,06 billion yen (£104.84 million), was up by 28.7 per cent on last year’s results but 1.8 per cent below those of 2006.
Leading the sales growth were gains in tyre markets outside Japan, says Yokohama. Total tyre sales for the year were 419.83 billion yen (£2.09 billion), an increase of 12.6 per cent. The double-digit sales growth reportedly more than offset the still-rising prices for raw materials and the upward trend in logistics costs. Operating profitability also benefited from the weakening of the yen during the fiscal year. Operating income climbed 77.6 per cent in Yokohama’s Tire Group, to 26.0 billion yen (£129.67 million). Progress in expanding production capacity at Yokohama’s tyre plants in Asia supported the company’s unit sales growth in markets outside Japan. Also contributing to the increased operating income in the Tire Group was improved profitability at subsidiaries in the United States and in Asian nations besides Japan.
Apollo Tyres Ltd has reported a 125 per cent increase in annual net profits, rising from 1.2 to 2.7 billion rupees (£33.42 million). Operating profits grew 50 per cent to 6.1 billion (£75 million), from 4.1 billion in 2006/07. Consolidated revenues grew by 9 per cent, while operating profit showed a growth of 50 per cent from 4.1 billion to 6.1 billion rupees. Net sales grew 9 per cent to 47 billion rupees. Apollo also detailed how its retread business is also booming – sales of DuraTread retreading materials grew 139 per cent in the period.
However, the company reported a worsening raw material situation, with crude and raw material prices rising sharply in the final quarter of the last financial year. At the beginning of the quarter crude was around $90 a barrel, while by the quarter end it had crossed $113/barrel. Rubber moved from 92 rupees/kg to 116 rupees/kg in the same period.
Federal & Hero brands have implemented a further price adjustment in advance of August 2008. The last price hike, which has only just been announced reportedly only offsets the increase of cost in the fourth quarter of 2007. Company representatives told T&A: “We are…forced to adopt up to 10 per cent for our product of Taiwan origin and 16 per cent for our Chinese made products. Cost hike of raw materials and energy is the deciding factor behind the price rises.” Federal blamed disproportionately fast labour cost increases for the 6 point higher hike on Chinese produced tyres.
Until recently the root cause of the OTR tyre shortage was under-production caused by increased demand for both finished OTR tyres and the raw materials need to make them. The latter just adding fuel to the OTR tyre price-increase fire that spontaneously combusts when demand exceeds supply. Since then, large scale manufacturers including Michelin, Bridgestone and Yokohama (to name but three) have pumped literally billions of dollars of investment into building new OTR tyre factories and expanding production at existing sites. However, these kinds of projects take time and in the interim, businesses reliant on OTR machinery have been looking further afield to source products.
Manufacturers in the emerging tyre production nations of India and China have been particularly quick off the mark in responding to the OTR tyre shortage. and some industry observers have been surprised at how quickly the Chinese manufacturers in particular have been able to radialise their production output. Tyres & Accessories recently visited the RTF Tyre Exhibition in Qingdao, China where literally dozens of companies are now offering radial OTR products.
Until recently the root cause of the OTR tyre shortage was under-production caused by increased demand for both finished OTR tyres and the raw materials need to make them. The latter just adding fuel to the OTR tyre price-increase fire that spontaneously combusts when demand exceeds supply. Since then, large scale manufacturers including Michelin, Bridgestone and Yokohama (to name but three) have pumped literally billions of dollars of investment into building new OTR tyre factories and expanding production at existing sites. However, these kinds of projects take time and in the interim, businesses reliant on OTR machinery have been looking further afield to source products.
Manufacturers in the emerging tyre production nations of India and China have been particularly quick off the mark in responding to the OTR tyre shortage. and some industry observers have been surprised at how quickly the Chinese manufacturers in particular have been able to radialise their production output. Tyres & Accessories recently visited the RTF Tyre Exhibition in Qingdao, China where literally dozens of companies are now offering radial OTR products.
When the US Department of Commerce put “anti-dumping” duties of up to 210 per cent on Chinese OTR imports in February, it closed the door on many Far Eastern OTR tyre manufacturers’ North American sales strategies. In light of the global OTR/earthmover tyre shortage these companies had been seeking to capitalize on their relatively low production costs by selling products into markets (like the US) where the shortage had pushed prices up. According to the US authorities the move was designed to stop “price distortion by Chinese exporters,” however another effect has been that this flow of OTR product has been redirected to other markets, including Europe and Africa.
Increased production and US restrictions mean Far Eastern tyremakers want to sell more OTR tyres in Europe
The figures available certainly seem to be in-keeping with the suggestion that premium manufacturers are leaving a gap in the market for cheaper competitors. The latest full-year ERMC Europool data for Western Europe shows that just over 134,000 OTR tyres were sold in the western European markets in 2007. However it is interesting to note that this actually represents a 6.6 per cent drop year-on-year. Broken down by application segment, it is clear that the 6.6 per cent overall drop is reflected across the board with two notable exceptions: Firstly, radial mechanical handling tyre sales grew roughly 5 per cent last year to approximately 23,000 units across Europe; and secondly radial crane tyre sales skyrocketed almost a fifth to over 17,000 units.
With no data to suggest that European market demand has reduced 6.6 per cent, and bearing in mind that these figures don’t include tyres produced outside Europe, the overall market drop could represent the gap in the market the imported tyre manufacturers are looking to fill. That said there is little in the way of evidence to show exactly how many tyres are being imported into Europe.
All this speculation about increased Far Eastern tyre product has led some global mining operations to conclude that the OTR tyre shortage will soon be over. Earlier this year, De Beers director Debbie Farnaby told Mining Weekly that she expects the shortage problems to be resolved by the end of 2008, despite earlier indications suggesting that the shortage of large OTR tyres would last two or three years longer.
During this interview Faranaby revealed that her company has been testing unidentified Far Eastern tyres at Venetia, De Beers’ largest South African diamond mine. However, just as interestingly (later in the same interview), Farnaby revealed a possible explanation as to why. The implication is that certain manufacturers appear to be offering preferential supply arrangements in exchange for information. “We won’t buy anything that’s not Michelin, we report everything that we get offered and, as a consequence, they’ve been very good in supplying us, and we have managed to keep all mines operational,” Farnaby told Mining Weekly. At the same time there are reports of Mining companies investing in increased tyre-making in partnership with tyre manufacturers so their investments can be repaid in kind with tyres.
The point is that those companies that don’t have such good relationships with manufacturers end up buying whatever they can source. And this does not always fulfil customer expectations.
Some customers report that tyres they expected to last 7000 hours in fact were useless after 1000 hours. While it is important not to tar all Far Eastern brush products with the same brush (some manufacturers are going to great lengths to demonstrate that they use premium materials and machinery in their tyres), this dramatic example is consistent with the worst reports T&A has encountered. Speaking off the record to one respected testing engineer revealed that with some exceptions, most Chinese radial OTR products he had tested do not yet offer the performance or retreadability that customers have come to expect from premium offerings.
Something similar appears to be true when it comes to high speed crane tyres. A year ago King’s Road Tyres’ Peter Gaster predicted that this market would soon reach saturation point: “In six months to a year from now the market with reach oversupply point. But you have to ask if all the products on the market are fit for purpose? One has to be sure that products are up to the job, especially when it comes to high-speed crane products.”
This view is further supported by the less than scientific anecdotal evidence provided by this month’s T&A question of the month. The overwhelmingly vast majority of those that answered our question (Has the European EM/OTR Market Reached Saturation Point?) answered “No – There may be more product than before, but I can’t get the right tyres.”
So on the one hand the OTR shortage may soon be over in some segment, but on the other hand that doesn’t necessarily mean there won’t continue to be a shortage of “the right kind of tyres.”
Full year 2007 financial highlights for Amtel-Vredestein have been made public and show a 22 per cent increase in net sales to US$997.4 million. This sales growth, says the company, can be primarily attributed to increased production and growing demand for Amtel-Vredestein tyres in both the OE and replacement tyres markets, as well as higher sales of the Company’s AV-TO unit due to the acquisitions of the autoparts and tyre wholesale businesses Pigma and Megashina in 2006, and the increased number of retail stores in the latest consolidated results.
Sales from the company’s Russian manufacturing operations, excluding the AV-TO unit, grew 14 per cent in the 2007 financial year, to $442 million, and sales from the European Vredestein Banden B.V. operations grew 18 per cent to $403 million. The company reports that its core passenger car tyre business is driving much of this growth: Net revenue from passenger car tyres grew 21 per cent to $615.8 million, and represented 62 per cent of total sales during the period. The company reports peak demand for its Vredestein and Amtel brands plus additional sales volume via its retail and wholesale channels.
TMD Friction has introduced an innovative hybrid brake pad generation; the company’s engineers have succeeded in covering European, Asian and American market requirements with one material family. Production is scheduled to start in 2009.
Derek Whitworth, CEO of TMD Friction, says: “In addition to environmental compatibility, our customers profit from greater comfort, a longer service life and reduced brake dust.” Close global cooperation between the engineers of TMD Friction in Germany, the USA and Japan resulted in the development of this new friction material generation.
With a turnover of 83.4 million euros in 2007, Kraiburg Austria recorded an increase of around four per cent on the previous year. The company’s mainstay of sales remains its retreading business division, accounting for 56.9 million euros.
This stability has been achieved in spite of the increasing competition due to material providers from overseas and cheap truck imports from the Far East. Positive results have begun to show through from the restructuring measures initiated last year in the sales organisation.
To improve the operating result, the company had taken the decision to manage customer contacts in selected countries without commercial agencies directly via the field and indoor service team. This cost-saving measure has been welcomed by all Kraiburg retreading partners.
The largest manufacturer of tyres in China by market share, Hankook Tire, is contemplating price increases in this market to offset the costs of oil and raw materials. CEO of the company holding a 25 per cent market share in China, Choi Jin-wook, made comments to this effect on April 21. Choi also said the company expected its sales volume to increase in China by about 20 per cent this year, a stronger rate than the anticipated industry wide 15 per cent growth.
The Reuters news service has quoted Choi as saying “the company has not decided on the details. We are considering a price hike, although nothing has been decided.” The Reuters report also indicated that Hankook was looking for other ways to cut costs, such as through higher productivity.
Today, when we think about the Russian market, two thoughts are most likely to arise in the minds of most Western Europeans. First, Russia is, or at least will be, a giant tyre market; and, second, most of us don’t know that much about this market and its players. One of the reasons we don’t know much about the Russian tyre market although it is so large in size is that there are almost no tyre exports from Russia and the CIS states into Western Europe, in particular for the passenger car tyre segment. It appears that the Russian tyre market is still locked up as if the iron curtain remained firmly in place, although admittedly Russia is absorbing ever more tyre imports from the West. As a matter of fact, not many well-established relationships exist between Western tyre manufacturers and wholesalers (or even retailers) with companies in Russia. What we hear and know is that the market is currently developing at such a speed that any company must maintain a certain level of persistence in order to stay in the game. The “Tires & Rubber” exhibition, which took place in Moscow from March 4 to 7, nourishes the idea that common ventures and established relations between Russian and Western European tyre market players are still a rare thing, although we can see that Russia is – step by step – emerging from the dark and entering the international scene.
Yokohama Tire is increasing prices for OTR and medium truck tyres in North America, effective May 2008. Record increases in the cost of raw materials and power are the factors quoted as driving the upcoming rises, which will be up to five per cent for OTR tyres and six per cent for medium truck tyres. Passenger car and light commercial vehicle tyres are not included in this latest price increase announcement.
“We have been doing our best to contain the soaring costs of raw material, manufacturing and transportation,” said Yokohama Dan King, Yokohama vice president of sales. “Unfortunately, Yokohama’s pricing must reflect these record costs.”
Marangoni Pneumatici, parent of Marangoni Tread North America, recently held its annual sales meeting in Italy, discussing the company’s latest tyre and retread product offerings. According to the company, the main topic of the meeting was an in-depth analysis of the problems of rubber-tyred transport, including the impact of fuel costs, around 32%, on companies operating in Europe. To meet those needs, Marangoni officials outlined the company’s new Ecoenergy low rolling resistance compounds, line extensions and bead-to-bead retreading for truck tyres. In addition, Marangoni has been working toward retreading larger OTR tyres, and now offers treads for sizes 33.00R51 and 36.00R51.
As well as introducing two new styles from respected German producer AEZ – the Sotara and Tacana, Kent based distributor Alcar offers for 2008 no less than nine new styles from the ever-expanding Dotz range, along with the new Midas wheel from League. These new designs range from 15 through to 22-inch sizes and Alcar believes they represent something new and exciting for all spectrums of the market. Of particular note, the company adds, is the new rainbow flip stainless rim technology present on the Dotz Alpha and the interchangeable coloured inserts available for the Dotz Avus SUV wheel. With significant investment in research and development and, taking into consideration the ever-rising price of raw materials, Alcar is pleased to have, by and large, managed to maintain prices without any significant increases for this year.
Trelleborg Wheel Systems has announced price increases ranging from 8 to 10 per cent, depending on country and local currencies. According to the company, these increases will affect both the replacement and Original Equipment manufacturing channels Trelleborg operates in. Trelleborg signalled that further price increase may be necessary during the course of 2008.
A company statement on the matter explained that Trelleborg Wheel Systems was “forced to act” by “the continuous and relevant increase of the cost of raw materials, made even worse by the strong acceleration seen in the first quarter.” The news comes two weeks after Watts Industrial Tyres raised its prices between 6 and 10 per cent, citing “limited worldwide rubber production.”
If you would like the latest news from the Chinese tyre industry in Chinese, visit our partner site TyrepressChina.com. Or click below to continue on Tyrepress.
