Commodity prices deflate potential tire profits – July 24, 2006

Rising rubber and crude oil commodity prices continue to put pressure on tire manufacturers.
The International Rubber Study Group (IRSG) says the current world consumption of rubber totals around 19 million tons per year and consists of 48 percent natural rubber and 52 percent synthetic rubber, a petroleum-derived product. Natural rubber prices are at multi-year highs and growing global demand has driven a
4 1/2-year rally in crude oil prices, which hit a record high above $75 a barrel in April.
On June 27, Bridgestone Corp., Japan’s biggest tire maker, cut its net profit forecast for the current year by 35 percent, blaming the rising costs of natural rubber, oil and other raw materials.
Earlier, Sumitomo Rubber Industries Ltd., Japan’s second-largest tire maker, lowered its sales forecast by 1.9 percent to 525 billion yen ($4.5 billion), saying it had found it difficult to pass on the costs of raw material prices to consumers. Goodyear Tire & Rubber Co. warned that 2006 operating income for its North American tire unit will be below 2005 levels and Michelin, the world’s largest producer of tires, indicated it may be difficult to meet its operating margin target due to high commodity prices.
The IRSG says the natural rubber market in 2005 grew by an estimated 4.8 percent to 8.75 million tons while the synthetic rubber sector grew 0.6 percent to 11.93 million tons. This year, the markets for natural and synthetic rubber are projected to increase to 8.97 million tons and 12.39 million tons, representing annual growth of 2.6 percent and 3.8 percent, respectively.
The IRSG focuses on the interpretation and analysis of economic factors shaping the development of the rubber and related industries. Member governments of the IRSG recently convened in Malaysia for the 42nd World Rubber Summit, themed Global Supply and Demand Challenges: Developing Strategies for the Future.
Speaking at the event, IRSG Secretary-General Hidde Smit said world rubber consumption is expected to reach 30 million tons by 2020 — representing an increase of more than 9 million tons compared to 2005.
Smit called for greater transparency in both natural and synthetic rubber industries to ensure proper planning for the benefit of producers and consumers, the sharing of information to assure optimal market developments and increased cooperation to achieve appropriate and up-to-date information for short-term and long-term policy formulation.