Assuming foreign exchange rates remain stable, skyrocketing natural rubber prices mean the tire industry will have to increase selling price by 3% to 4% to offset this raw material.
That’s the view of Deutsche Bank analysts, which report in a recent investors note that the natural rubber price has doubled over the last 12 months from $1.5/kg to US$3.0/kg (RSS3 grade).
“This increase will have a four to six months lag effect on tire companies’ profit and loss…So far, we have no reason to be worried since…end market volumes are recovering (especially on passenger car tires…inventories at dealers are low (sell in markets have been worse than sell out markets),” the analysts explained. (Tyres & Accessories)
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Since natural rubber represents approximately 30% of a tiremaker’s raw material costs, manufacturers are going to have to increase prices in response, according to Deutsche Bank.
