Tire materials costs trending higher

Most, but not all, tire makers expect significant rises in the cost of key feedstocks and rubber raw materials

Major tire manufacturers are mostly predicting significant rises in the cost of crude oil-based feedstocks and raw materials for this year.

Continental had previously forecast effects from raw-material prices to be nearly balanced for the Rubber Group, which comprises its Tire and ContiTech divisions.

With the average price of North Sea Brent crude oil up from $54 per barrel to $71 per barrel in the first half, costs for carbon black and other chemicals are now expected to rise by over 10% compared to average prices in 2017.

For butadiene, the main synthetic-rubber feedstock, the company increased its forecast for the average price across the year from $1.51/kg to $1.60/kg.

For natural rubber prices, however, the company expects the average price to be below the previous year’s level: $1.44/kg, compared to $1.67/kg in 2017.

Headwinds

Increasing materials costs were among the headwinds facing Goodyear at the half-year point, according to its chairman, CEO and president Richard Kramer.

The Akron tire maker blamed a 20% drop in first-half segment operating income, to $605 million, on the effects of higher raw material costs and reduced price/mix.

“While our execution in the period was robust, macro headwinds are intensifying – including rising raw material costs, a stronger US dollar and softening market conditions in China,” said Kramer.

“Based on current spot prices for the full year of 2018, we expect our raw material costs will be up approximately $190 million compared to 2017,” added Goodyear’s statement.

The US company, however, cautioned that this estimate could change significantly based on fluctuations in the cost of natural rubber and synthetic rubber and other key raw materials.

“We are continuing to focus on price and product mix, to substitute lower-cost materials where possible, to work to identify additional substitution opportunities, to reduce the amount of material required in each tire, and to pursue alternative raw materials,” stated Goodyear.

Also in the US, Cooper Tire noted a ‘slight’ increase in its raw materials costs compared to the second quarter of 2017.

The company’s raw material index increased 4.6% sequentially from 156.6 in the first quarter of 2018 to 163.8 in the second quarter.

Cooper Tire’s second-quarter figures note a $2-million rise in raw materials costs within its Americas segment but a $6-million decrease across its International segment.

But the issue is not going away, president & CEO Brad Hughes commenting: “Due to continuing industry challenges and, in particular, rising raw material costs, we are revising our expectations for the balance of the year.

“Cooper now anticipates unit volume to be flat in 2018 compared to 2017, with a modest sequential improvement in operating profit margin in the second half of this year.”

Groupe Michelin’s interim results include a €67-million negative effect on higher raw materials costs over the first six months of this year.  This included increases of between 1% and 2% in average process for butadiene and natural rubber.

The French group, however, noted that price-changes take around six months to feed through to its income statement for natural rubber and around three months for butadiene.

More positive

There were more positive soundings from other players.

At the half-year stage, Bridge-stone Corp. reported year-on-year declines of 21% and 27% respectively in the price of TSR20 and RSS3 – two of its most widely used natural rubber grades.

Also in Japan, Sumitomo Rubber Industries Ltd (SRI) reported a 27.4% rise in operating income, to $248.8 million, on sales of $3.91 billion. The first-half gains, it said, reflected better product pricing and lower natural rubber costs.

However, SRI is trimming its full-year sales and earnings forecasts due to more recent fluctuations in raw materials prices and other factors, the company said in its half-year earnings report.

In its first-half statement, Nokian Tyres Group reported a 3.1% year-on-year fall in raw material costs (EUR/kg) for the six months to 30 June.

This positive trend strengthened in the second quarter, as materials costs fell 5.4% year-on-year and by 1.1% from the first quarter of 2018.

Looking to prospects for 2018 as a whole, raw materials costs are estimated “to remain approximately at the same level in 2018 compared with 2017,” said the Finnish tire maker.