The fact that natural rubber prices have rebounded 25% to$2.1/kg for RSS3 in the last month means raw material prices that had beenassisting tyre manufacturers are no longer a “tailwind.

The news is forcing analysts such as Deutsche Bank revisetheir earnings estimates as they had mostly factored in the possibility thatthat tyre companies would pass a portion of this raw material price benefitonto their vehicle making customers. However, with the current boost in rubberprices behind them the 33%-50% of the so-called rubber tailwind they may havepenciled to share with the OEMs is not likely to be erased.

Since 75% of tyre demand comes from the aftermarket,analysts expect tyre manufactures to keep most of the benefit of the lowerprices they have been experiencing in advance of the prices hikes kicking intotheir balance sheets in six months time. As a result of this and improvedsell-in sales, profit margins are expected to increase.

Rubber represents a significant portion of the purchasingcost for tyre companies. According to Deutsche Bank, 56% of Michelin’s and 50%of Pirelli’s purchasing bill is made up of rubbers. (Tyres & Accessories)