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Low Supply, Higher Raw Materials Bring Tire Shortage

July 09, 2010
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A combination of supply shortage and raw material price increases means consumers can expect tire prices to rise in the second half of 2010.

The National Tyre Distributors Association (NTDA) and its wholesale arm, the Tyre Wholesalers Group (TWG) warned that "substantial" price rises are imminent.

The core raw material price increase reasons for the shortage are nothing new, but the fact that a number of tire manufacturers closed factories in recent years means there is now insufficient capacity to make up the shortfalls. In addition, the fact that last winter was particularly severe across much of northern Europe led to unprecedented demand for winter tires. With this year's winter selling season due to begin shortly, manufacturers are replenishing stocks of winter tires in preparation.

Another factor is the improvement in sales of cars. Many of the larger tire manufacturers are contractually committed to supply certain numbers of tires for original equipment fitment on cars, thus reducing availability for the replacement market. But it is not just the large manufacturers which are suffering, as David White, the national chairman of the NTDA described the situation as "the worst we have seen,” adding: "the shortages are affecting all manufacturers and all sectors of the market, from premium brands to budget tires."
It had been thought that the U.S. imposition of a levy on tires manufactured in China would lead to dumping on the European markets, but this just didn't happen. Ashley Croft, the chairman of the NTDA’s Tyre Wholesalers Group, which represents all the principal tire wholesalers in the U.K. market, commented: "Any reduction of supply to the U.S. was both minimal and short-lived, when it was realized that the levy was causing prices to rise. “The supply situation is steadily worsening, with many tire retailers and wholesalers operating on drastically reduced levels of stock and in danger of running out of some sizes.”

The situation for run-flat tires is slightly different; while run-flat sizes are suffering from the same lack of availability, it appears that some manufacturers have kept back a buffer stock for their car dealerships. Thus, while a motorist wanting a replacement run-flat may not be able to get it from his local fast-fit, he should be okay if he goes to a franchised dealership, according to the NTDA

The result of these factors is said to be shortages, which have already led to some price increases, but other economic factors make further rises inevitable. Chief among these is a series of increases in the costs of raw materials, with prices of natural rubber doubling over the past eight months. Prices of steel and oil have also been driven steadily upward and show little sign of coming down.

The tire manufacturers have tried to absorb these costs as much as possible, but eventually they have to be passed on. Because raw material costs make up a greater proportion of the overall cost of a budget tire, compared to a premium brand, it is said to be the budget manufacturers that are suffering more.

These factors are specific to tire manufacturing, but the industry is subject to outside economic pressures, such as the effect of currency exchange rates. Then there are rising transport costs, with the increase of shipping a 40-foot container rising almost fourfold; bad news for those who import tires from the Far East.

Closer to home, U.K. diesel prices have risen by 25% over the past year and look set to continue climbing.

According to David White, the availability position is unlikely to improve in the short term and the shortage of popular sizes of tires, together with the economic factors outlined above, means that the motorist should brace himself for some hefty price rises, assuming that they can lay their hands on the tires in the first place. (Tyres & Accessories)