Natural Rubber Costs Pump Up U.S. Tire Prices

Oct. 11, 2010
North American tire prices are rising by as much as 6.5% this quarter.

Continued demand from automakers in China, Japan, India and North American will create a 'bullish-phase', according to the Association of Natural Rubber Producing Countries.

Global natural rubber production will continue to lag behind soaring demand for some months to come, according to producers and exporters in Thailand and Indonesia, the world's top producing countries. And that could boost the natural rubber price on the Singapore Commodity Exchange in excess of 400 cents/kilogram next spring and to an average 394 cents/kilogram next year from an average 333 cents this year. By comparison, natural rubber was 192 cents/kg in 2009.

Extreme weather and aging trees in the key rubber-growing countries of southeastern Asia will reduce natural rubber production to 10.25 million metric tons this year, according to the International Rubber Study Group. Meanwhile, natural rubber consumption will be 10.31 million metric tons.

Looking ahead, projected demand of 11.26 million metric tons in 2011 will outpace anticipated production of 11.0 million metric tons. The bullish natural rubber demand and price outlook is supported by the fact that inventories of the material, used to make gloves, hose, gaskets, and condoms as well as motor vehicle tires, are projected to fall to 67 days of demand in 2011, according to an analysis by Goldman Sachs Group. That's because of a projected 16.4% rise in world automotive production this year, according to IHS Global Insight, and an 8.5% expansion in 2011.

Since natural rubber constitutes as much as 40% of the cost of tire production, tire makers have had to boost prices to offset the higher cost of their key raw material. Goodyear Tire & Rubber was the first large manufacturer to institute a second round of price increases, raising consumer tire prices by 6% on October 1.

Other tires makers have quickly followed. Hankook Tire America is raising U.S. prices by 6.5% on its full line of passenger, light truck, and medium-duty truck tires on November 1. "While we remain focused on controlling our manufacturing and distribution expenses, the costs of energy, raw materials, and transportation has continued to rise making it necessary for us to make this price adjustment," said Todd Hershberger, Hankook's senior vice president.

Cooper Tire & Rubber will boost consumer tire prices in North America by 6.5%, also effective November 1. Pirelli Tire North America will raise U.S. consumer tire prices by 7% on December 1. Other tire makers also are expected to raise prices again this quarter. In June, Toyo Tire U.S.A., Goodyear Tire & Rubber, Nexen Tire America, Kumho Tire U.S.A., Yokohama Tire, Hankook Tire America, Michelin North America, Cooper Tire & Rubber, Falken Tire, Bridgestone Americas Tire, and Continental Tire all raised regional consumer and commercial tire prices by an average 7%.

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