Just when we thought we’d see some clarity, things start getting cloudy again.
The good news right now, say industry analysts, is that input costs continue their downward trend. Oil, as you surely have seen, remains below $50 per barrel, and natural rubber prices remain stable but well below the rates of recent years. So, the watchers say, depressed raw material costs will help boost tiremaker gross margins.
In his most recent report, Anthony Deem, an analyst with KeyBanc Capital Markets, wrote: “Given the sizable decline in synthetic and natural rubber costs (minus-10%-minus-15% quarter over quarter), manufacturers are likely experiencing overall raw materials costs down mid to high single digits quarter over quarter; we believe the product cost picture is trending better than expectations set at the beginning of the 4Q. Combined with stable retail tire pricing during the 4Q, we expect a favorable dynamic for manufacturers’ price/mix vs. raw materials spread over the coming quarters.”
While the full impact of the pending countervailing and anti-dumping duties on China-made consumer tires imported to the U.S. remain an unknown, some feel the depressed input costs might counter most of the expected negative impact the duties may have on the prices of all levels of tires. Certainly, at least, for imported products coming from China.
Pointing to crude oil prices that are off nearly 50% year-over-year, some analysts expect a rise in “vehicle utilization.” We’re not so sure. Certainly, paying less than $2 a gallon at the pump is a joyful moment in time, wary consumers are keeping an eye open. Some pundits think we’ll return to the $3.50 range by mid-2016, words that send a shiver through the consuming public. Perhaps nothing will happen, or gasoline will settle somewhere in between.
Diesel, equally, has dropped from mid-2014 highs, giving added relief to fleets and shippers. Certainly that will help keep the costs of goods stable for the foreseeable future.
But some don’t see low pump prices driving a sharp rise in vehicle miles driven. We’ve seen slight inclines in each of the last eight quarters, which has led to optimistic statements that all is well and excessive use of the term “pent up demand.”
None of that takes into account the heavy loss replacement tire demand took thanks to another sharp increase in the sales of new passenger vehicles. U.S. car and light truck sales ended the year at 16.5 million units, up 5.8% YoY. That equates to 66 million replacement tires being taken out of the system and being shifted to future purchases.
For the month of November, KeyBanc Capital Markets reports that tire dealers saw a 2.92% YoY boost in consumer tire sales revenue and a 4.07% YoY increase in consumer tire units sold. On the medium truck tire side, unit sales increased 4.96% YoY. Both continue a positive trend that started back in the second quarter and solidified over the summer.
When it comes to gauging inventories, 84.5% of consumer tire dealers reported their stocks were “just right,” up from October’s 39.4%. Just over 13% saiud their inventories were too high in November, down considerably from October’s 57.5% result.
On the commercial side, 20.93% of dealers said their stocks were too high in November, down from October’s 38.4% result. “Just right” was reported by 55.81% of dealers with medium truck tire inventories, down from October’s 60.8% report.
Tiremaker pricing was termed “normal” by 64.06% (88.3% in October) of consumer tire dealers in November, while 25.78% (7%) claimed pricing was “aggressive” and 10.16% (4.7%) said it was “firm.”
November pricing on medium truck tires, according to dealers, was “normal” 76.74 (12% in October), “aggressive” 13.18% (61.6%), and “firm” 10.08% (26.4%).
Expect pricing on the consumer side to get dodging in the coming months as we start to see the real-world impact of higher duties on imported consumer tires coming from China. Already, the anticipated impact has forced private brander Del-Nat Tire Corp. to sell itself to TBC Corp., which will face its own China duty issues.
Cooper, which sees a countervailing duty increase of 12.5%, has raised prices by 6% to 8% on some of its China-made lines. Giti Tire (USA) took a 9.5% increase on all of its passenger and light truck/SUV tires. Both of these were posted before anti-dumping duty levels were announced.
When those additional duties are announced later this month, we expect that there will be a much broader round of price hikes.
