Tire prices heading up up up!
03-08-2011, 07:17 PM
#1
Team Owner
Thread Starter
Tire prices heading up up up!
I had a flat on my truck and tire dealer told me tires are going way up. He said a tire that was 210 last year his cost is now 285. He said every time he sells a tire it is a battle with the customers.
http://www.cleveland.com/business/in...ive_as_ru.html
Automotive
Thursday, 27 01 2011
More in Automotive
Goodyear threatened by rubber price hike
BY ABDUL MALIK
EmailShare
Goodyear Indonesia is yet to raise tire rates, despite the increasing price of rubber. (IFT/MELLY RIANA SARI)
JAKARTA (IFT) –US-based tire manufacturer PT Goodyear Indonesia Tbk (GDYR) is yet to raise tire rates, despite the increasing price of rubber. However, Agus Setyanegara, Goodyear Indonesia’s Corporate Secretary, said that the volatile rubber price gives the company no other option. “Currently, raw rubber is priced at US$ 5.4 per kilogram, while our psychological level is at US$ 6/kg. The increase from 2010 has skyrocketed nearly 300 percent,” he said.
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Home | News | BUSINESS NEWS | Raw Materials | Sky-high raw material costs put pressure on tyre suppliers
Sky-high raw material costs put pressure on tyre suppliers
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« back to last page | Created: February 24, 2011 04:48:00 PM
image Sky high raw material costs are having a marked effect on tyre producers
With relative shortages in supply and increased demand from the rapidly expanding emerging markets of the East pushing natural rubber and other raw material costs higher and higher, most tyre manufacturers are again raising their prices in response. But what do the latest raw material hikes mean for the world’s tyre manufacturers? And how much longer will this price boom continue?
With raw material prices accounting for between 20 and 40 per cent of annual sales managing price rises is becoming increasing important. Sources differ on the specifics on what proportion of revenues the occupy (for example Deustche Bank says 35 to 50% and Morgan Stanley says 20 to 30%), but financial analysts are unanimous in their assessment of skyrocketing input costs being serious “headwinds” for tyre manufacturers. In a recent investors note market watchers from Deutsche Bank observed that raw material costs increased by approximately 15 per cent in 2010, virtually all of which took effect in the second half of the year. The bulk of this increase is attributable to natural rubber, which reportedly accounts for between 10 and 12 per cent of tyre manufacturer sales by itself. Natural rubber costs increased by 50 per cent in 2010 and by a further 15 per cent so far this year (correct at the time of writing in February 2011).
With post recession tyre demand recovering in mature markets and continuing to boom in emerging economies it is clear that this scenario still has much to play out. “We expect raw material prices to increase by a further 20 per cent in 2011 if natural rubber stabilizes at its current high level. Thus, in two years, 2010-11, raw material prices would have increased by a high 35 per cent,” said Deutsche Bank’s report, explaining that taking advantage of the positive volume environment and prices increases of 6 per cent plus are a necessity.
So far the tyre industry in general is reported to have increased selling prices by 6 per cent in 2010 and by a further 8 per cent in 2011. There were a record three rounds of price increases in North America last year and two in Europe. Despite this proactive response to the price pressures facing them, Deutsche Bank reports that manufacturers have not been able to pass enough of the price increase they face onto their customers: “Considering that only 50 per cent of price increase sticks, we can conclude that most of these price increases offset approximately 70 per cent of the raw material price headwinds.”
And these headwinds are a headache for tyre makers because they mean, in Morgan Stanley’s words, “parts win over tyres” when it comes to investing. Their reasoning is that while oil, natural and synthetic rubbers and steel are unavoidable costs for tyre firms, other parts makers don’t rely on them as much as a proportion of costs or in terms of volumes needed.
In turn this has more of an impact on the earnings of tyre makers than of comparably sized automotive parts suppliers.
Basing its calculations on the estimate that raw materials account for 20 to 30 per cent or more of revenue, Morgan Stanley explained that every 10 per cent increase in the raw material cost index can eliminate “200 to 320 basis points of margin, before any hedging or pass-through to customers…
Hedging their bets
One reason why the strongest tyre manufacturers have been able to continue publishing positive results is due to the combination of buying power and the judicious use of hedging – the practice of taking a position on the future cost of a commodity (perhaps natural rubber) now in order to insulate the buyer from future price increases.
Talking to industry sources reveals that European manufacturers hedge their raw material costs more commonly that Far Eastern tyre companies, leading to differing pricing strategies when prices increase. In addition, the largest companies such as Bridgestone and Michelin (for example) have the benefit of enormous buying power that even companies at the other end of the top 10 global tyre makers can’t match on their own. In contrast Far Eastern (particularly Chinese companies) generally don’t hedge their raw material supplies and prefer to implement month by month cost increases. The Western approach gives more options to manufacturers as to when and by how much they increase their prices, however the Chinese companies are known for fast reactions to increased input costs resulting in more numerous price hikes of their own.
Part makers are said to be better hedged than tyre makers. “In spite of lower pricing power, we believe part makers are less vulnerable to raw material prices than tyres due to: lower weight of inputs on sales; lower inflation to date in key inputs versus tyres; and raw material pass-through clauses with OE customers,” Morgan Stanley analyst Edoardo Spina recently wrote.
Conti performance ‘entirely attributable to tyre operations’
With this in mind you would think that a group such as Continental AG, which has evolved into as much an automotive supplier as a tyre manufacturer over the years would be less exposed and more profitable that other tyre companies. And you would be right…sort of. Like any large player in these market conditions Conti has to fight hard to maintain the impressive levels of profitability (20 per cent EBIT margins for example) it has achieved in the past, but there is an irony here to. Judging by the group’s latest financial results the company is able to report margins of this kind in the midst of high raw material prices, but not because it is able to average the increases of input costs across the parts divisions.
Continental AG’s most recent adjusted EBIT was reportedly 15 per cent (100 million euros) above estimates produced by Deutsche Bank. With net debt below 6.5 billion euros, the impressed analysts commented that “these better results are entirely attributable to the tyre operations.” The tyre division contributes 28 per cent of the group’s sales and 42 per cent of adjusted EBIT, which reported a higher result despite the significant raw materials headwind.
Let’s take Michelin as another example of how tyre manufacturers are coping with the high costs. Analysts report that the impact of raw materials costs on operating income is estimated at 1,500 million euros, assuming Michelin’s cost of natural rubber averages $4.8/kg. According to the French tyre manufacturer’s full year 2010 financial results, 850 million euros of this has already been offset by the full year impact of the 2010 price increases and the 2011 implementation of the raw materials-based price indexation clauses. The new price increases already announced in 2011 are designed to cover a further 300 million euros. Therefore, 75 per cent of the additional raw materials cost is already covered. However 250 million euros is not small potatoes.
Date
announced Company Region Change
Feb-11 Toyo Japan average 7%
Feb-11 Jinyu Global up to 8%
Feb-11 Federal Global up to 12%
Feb-11 Michelin Europe 4-7.5%
Feb-11 Bridgestone North America up to 8%
Jan-11 Cooper Global 2.5%
Jan-11 Pirelli Global (ex NA) 3.0%
Jan-11 Pirelli Global (ex NA) 7.0%
Jan-11 Michelin North America 7.0%
Dec-10 Continental Europe 7.0%
Dec-10 Michelin Europe 5.0%
Dec-10 Bridgestone Japan 7.0%
Dec-10 CGS Worldwide 7.5-10%
Dec-10 Continental North America up to 8%
Nov-10 Michelin North America NA
Nov-10 Yokohama North America up to 6%
Nov-10 Michelin North America 8%
Nov-10 Continental Asia 5%
Nov-10 Bridgestone North America up to 8%
Nov-10 Continental US up to 6.5%
Nov-10 Continental Europe avg 5%
Oct-10 Continental Europe avg 5%
Oct-10 Kumho North America up to 6.5%
Oct-10 Goodyear North America up to 8%
Sep-10 Hankook North America up to 6.5%
Sep-10 Pirelli North America up to 7%
Source: T&A research, manufacturers, Morgan Stanley
Tyre sales volumes are one answer
If an average European passenger car tyre sells 50 euros then, according to the latest figures, raw materials represent 16.60 euros (33 per cent) of the selling price (42 – 47 per cent in the case of an OE tyre and 28 – 30 per cent with a replacement tyre). According to the analysts, to fully offset a 3 euro material price increase, the industry needs to increase selling price by 6 per cent.
The situation is even more difficult in the truck tyre sector. Deustche Bank reports that European truck tyres have an average price of 250 euros, 132 euros worth of raw materials or 52 per cent of its selling price. To offset a 37 per cent raw material price increase (40 euros), they say the industry needs to increase selling price by 16 per cent.
The good news is that last year industry volumes recovered strongly, gaining 16 per cent. And what’s more, industry observers expect further growth of 5 -6 per cent in 2011 (4 per cent growth in passenger car volumes and 9 per cent on the truck tyre side). As a result 2011 volumes are predicted to be 8 per cent above pre-crisis levels of 2007. The theory is that since fixed costs represent 30 per cent of sales at Continental and Pirelli) to 40% (Michelin), the volume effect should be enough to fully offset the balance raw material price headwinds.
However, success in the execution of strategies like these is not guaranteed. Assuming tyre companies can transfer around 70 per cent of the increase in raw materials to customers, for every further 10 per cent increase in oil and rubber price, Morgan Stanley estimates that full year 2011 earnings per share are likely to deteriorate by between 5 – 7 per cent and 3 – 4 per cent respectively. Even assuming sustained tyre demand allows abnormal year-on-year tyre price increases, they highlight the risks consumers may continue to trade down, continuing the recent de-segmentation phenomenon. And this has to be taken seriously.
While every supplier is being forced to increase costs, consumers have been hit with increased rates of inflation and – in the UK at least – higher VAT costs, all of which is squeezing their purchasing budget. As one wholesaler recently told Tyres & Accessories, “when you have got a customer who had £100 to spend on a tyre last year, he has still only got £100 to spend this year.” The problem is due to all of the above, that £100 could well buy him a different tyre than he bought before.
But with natural rubber prices apparently continuing on their current trajectory and the string of popular uprisings in oil-producing Arab nations pushing up the already high prices of oil-based products, there isn’t an immediate end to this trend in sight.
Related news:
*
Nexen increasing North American prices
*
Toyo Tire raises US prices
*
Sumitomo Rubber warns on earnings, to raise prices 7%
*
Federal Tires’ prices to go up from 1 March
http://www.cleveland.com/business/in...ive_as_ru.html
Automotive
Thursday, 27 01 2011
More in Automotive
Goodyear threatened by rubber price hike
BY ABDUL MALIK
EmailShare
Goodyear Indonesia is yet to raise tire rates, despite the increasing price of rubber. (IFT/MELLY RIANA SARI)
JAKARTA (IFT) –US-based tire manufacturer PT Goodyear Indonesia Tbk (GDYR) is yet to raise tire rates, despite the increasing price of rubber. However, Agus Setyanegara, Goodyear Indonesia’s Corporate Secretary, said that the volatile rubber price gives the company no other option. “Currently, raw rubber is priced at US$ 5.4 per kilogram, while our psychological level is at US$ 6/kg. The increase from 2010 has skyrocketed nearly 300 percent,” he said.
Search
Advanced Search
Home | News | BUSINESS NEWS | Raw Materials | Sky-high raw material costs put pressure on tyre suppliers
Sky-high raw material costs put pressure on tyre suppliers
Font size: Decrease font Enlarge font
« back to last page | Created: February 24, 2011 04:48:00 PM
image Sky high raw material costs are having a marked effect on tyre producers
With relative shortages in supply and increased demand from the rapidly expanding emerging markets of the East pushing natural rubber and other raw material costs higher and higher, most tyre manufacturers are again raising their prices in response. But what do the latest raw material hikes mean for the world’s tyre manufacturers? And how much longer will this price boom continue?
With raw material prices accounting for between 20 and 40 per cent of annual sales managing price rises is becoming increasing important. Sources differ on the specifics on what proportion of revenues the occupy (for example Deustche Bank says 35 to 50% and Morgan Stanley says 20 to 30%), but financial analysts are unanimous in their assessment of skyrocketing input costs being serious “headwinds” for tyre manufacturers. In a recent investors note market watchers from Deutsche Bank observed that raw material costs increased by approximately 15 per cent in 2010, virtually all of which took effect in the second half of the year. The bulk of this increase is attributable to natural rubber, which reportedly accounts for between 10 and 12 per cent of tyre manufacturer sales by itself. Natural rubber costs increased by 50 per cent in 2010 and by a further 15 per cent so far this year (correct at the time of writing in February 2011).
With post recession tyre demand recovering in mature markets and continuing to boom in emerging economies it is clear that this scenario still has much to play out. “We expect raw material prices to increase by a further 20 per cent in 2011 if natural rubber stabilizes at its current high level. Thus, in two years, 2010-11, raw material prices would have increased by a high 35 per cent,” said Deutsche Bank’s report, explaining that taking advantage of the positive volume environment and prices increases of 6 per cent plus are a necessity.
So far the tyre industry in general is reported to have increased selling prices by 6 per cent in 2010 and by a further 8 per cent in 2011. There were a record three rounds of price increases in North America last year and two in Europe. Despite this proactive response to the price pressures facing them, Deutsche Bank reports that manufacturers have not been able to pass enough of the price increase they face onto their customers: “Considering that only 50 per cent of price increase sticks, we can conclude that most of these price increases offset approximately 70 per cent of the raw material price headwinds.”
And these headwinds are a headache for tyre makers because they mean, in Morgan Stanley’s words, “parts win over tyres” when it comes to investing. Their reasoning is that while oil, natural and synthetic rubbers and steel are unavoidable costs for tyre firms, other parts makers don’t rely on them as much as a proportion of costs or in terms of volumes needed.
In turn this has more of an impact on the earnings of tyre makers than of comparably sized automotive parts suppliers.
Basing its calculations on the estimate that raw materials account for 20 to 30 per cent or more of revenue, Morgan Stanley explained that every 10 per cent increase in the raw material cost index can eliminate “200 to 320 basis points of margin, before any hedging or pass-through to customers…
Hedging their bets
One reason why the strongest tyre manufacturers have been able to continue publishing positive results is due to the combination of buying power and the judicious use of hedging – the practice of taking a position on the future cost of a commodity (perhaps natural rubber) now in order to insulate the buyer from future price increases.
Talking to industry sources reveals that European manufacturers hedge their raw material costs more commonly that Far Eastern tyre companies, leading to differing pricing strategies when prices increase. In addition, the largest companies such as Bridgestone and Michelin (for example) have the benefit of enormous buying power that even companies at the other end of the top 10 global tyre makers can’t match on their own. In contrast Far Eastern (particularly Chinese companies) generally don’t hedge their raw material supplies and prefer to implement month by month cost increases. The Western approach gives more options to manufacturers as to when and by how much they increase their prices, however the Chinese companies are known for fast reactions to increased input costs resulting in more numerous price hikes of their own.
Part makers are said to be better hedged than tyre makers. “In spite of lower pricing power, we believe part makers are less vulnerable to raw material prices than tyres due to: lower weight of inputs on sales; lower inflation to date in key inputs versus tyres; and raw material pass-through clauses with OE customers,” Morgan Stanley analyst Edoardo Spina recently wrote.
Conti performance ‘entirely attributable to tyre operations’
With this in mind you would think that a group such as Continental AG, which has evolved into as much an automotive supplier as a tyre manufacturer over the years would be less exposed and more profitable that other tyre companies. And you would be right…sort of. Like any large player in these market conditions Conti has to fight hard to maintain the impressive levels of profitability (20 per cent EBIT margins for example) it has achieved in the past, but there is an irony here to. Judging by the group’s latest financial results the company is able to report margins of this kind in the midst of high raw material prices, but not because it is able to average the increases of input costs across the parts divisions.
Continental AG’s most recent adjusted EBIT was reportedly 15 per cent (100 million euros) above estimates produced by Deutsche Bank. With net debt below 6.5 billion euros, the impressed analysts commented that “these better results are entirely attributable to the tyre operations.” The tyre division contributes 28 per cent of the group’s sales and 42 per cent of adjusted EBIT, which reported a higher result despite the significant raw materials headwind.
Let’s take Michelin as another example of how tyre manufacturers are coping with the high costs. Analysts report that the impact of raw materials costs on operating income is estimated at 1,500 million euros, assuming Michelin’s cost of natural rubber averages $4.8/kg. According to the French tyre manufacturer’s full year 2010 financial results, 850 million euros of this has already been offset by the full year impact of the 2010 price increases and the 2011 implementation of the raw materials-based price indexation clauses. The new price increases already announced in 2011 are designed to cover a further 300 million euros. Therefore, 75 per cent of the additional raw materials cost is already covered. However 250 million euros is not small potatoes.
Date
announced Company Region Change
Feb-11 Toyo Japan average 7%
Feb-11 Jinyu Global up to 8%
Feb-11 Federal Global up to 12%
Feb-11 Michelin Europe 4-7.5%
Feb-11 Bridgestone North America up to 8%
Jan-11 Cooper Global 2.5%
Jan-11 Pirelli Global (ex NA) 3.0%
Jan-11 Pirelli Global (ex NA) 7.0%
Jan-11 Michelin North America 7.0%
Dec-10 Continental Europe 7.0%
Dec-10 Michelin Europe 5.0%
Dec-10 Bridgestone Japan 7.0%
Dec-10 CGS Worldwide 7.5-10%
Dec-10 Continental North America up to 8%
Nov-10 Michelin North America NA
Nov-10 Yokohama North America up to 6%
Nov-10 Michelin North America 8%
Nov-10 Continental Asia 5%
Nov-10 Bridgestone North America up to 8%
Nov-10 Continental US up to 6.5%
Nov-10 Continental Europe avg 5%
Oct-10 Continental Europe avg 5%
Oct-10 Kumho North America up to 6.5%
Oct-10 Goodyear North America up to 8%
Sep-10 Hankook North America up to 6.5%
Sep-10 Pirelli North America up to 7%
Source: T&A research, manufacturers, Morgan Stanley
Tyre sales volumes are one answer
If an average European passenger car tyre sells 50 euros then, according to the latest figures, raw materials represent 16.60 euros (33 per cent) of the selling price (42 – 47 per cent in the case of an OE tyre and 28 – 30 per cent with a replacement tyre). According to the analysts, to fully offset a 3 euro material price increase, the industry needs to increase selling price by 6 per cent.
The situation is even more difficult in the truck tyre sector. Deustche Bank reports that European truck tyres have an average price of 250 euros, 132 euros worth of raw materials or 52 per cent of its selling price. To offset a 37 per cent raw material price increase (40 euros), they say the industry needs to increase selling price by 16 per cent.
The good news is that last year industry volumes recovered strongly, gaining 16 per cent. And what’s more, industry observers expect further growth of 5 -6 per cent in 2011 (4 per cent growth in passenger car volumes and 9 per cent on the truck tyre side). As a result 2011 volumes are predicted to be 8 per cent above pre-crisis levels of 2007. The theory is that since fixed costs represent 30 per cent of sales at Continental and Pirelli) to 40% (Michelin), the volume effect should be enough to fully offset the balance raw material price headwinds.
However, success in the execution of strategies like these is not guaranteed. Assuming tyre companies can transfer around 70 per cent of the increase in raw materials to customers, for every further 10 per cent increase in oil and rubber price, Morgan Stanley estimates that full year 2011 earnings per share are likely to deteriorate by between 5 – 7 per cent and 3 – 4 per cent respectively. Even assuming sustained tyre demand allows abnormal year-on-year tyre price increases, they highlight the risks consumers may continue to trade down, continuing the recent de-segmentation phenomenon. And this has to be taken seriously.
While every supplier is being forced to increase costs, consumers have been hit with increased rates of inflation and – in the UK at least – higher VAT costs, all of which is squeezing their purchasing budget. As one wholesaler recently told Tyres & Accessories, “when you have got a customer who had £100 to spend on a tyre last year, he has still only got £100 to spend this year.” The problem is due to all of the above, that £100 could well buy him a different tyre than he bought before.
But with natural rubber prices apparently continuing on their current trajectory and the string of popular uprisings in oil-producing Arab nations pushing up the already high prices of oil-based products, there isn’t an immediate end to this trend in sight.
Related news:
*
Nexen increasing North American prices
*
Toyo Tire raises US prices
*
Sumitomo Rubber warns on earnings, to raise prices 7%
*
Federal Tires’ prices to go up from 1 March
Last edited by John Shiels; 03-08-2011 at 07:22 PM.
