Global Tire Demand Exceeding Supply Helps Bridgestone, Goodyear, Sumitomo
Stock Chart for Sumitomo Rubber Industries Ltd (5110)
Tire sales in China, the world’s largest auto market, may increase 30 percent this year, or at 10 times the global rate, President Ikuji Ikeda said in an interview. Sumitomo Rubber, the largest Japanese tiremaker after Bridgestone Corp. (5108), said global sales will increase 3.1 percent to 93.7 million tires this year.
Rubber prices climbed 41 percent in the past year and reached a record in February after auto sales in China surged 32 percent in 2010 to an all-time high, surpassing the U.S. market for a second year. Increasing costs spurred tiremakers from Bridgestone to Akron, Ohio-based Goodyear Tire & Rubber Co. to raise prices. Commodities beat stocks, bonds and the dollar for five straight months through April, prompting central banks from Beijing to Brasilia to raise interest rates to cool inflation.
“Tire supply/demand is tight globally and particularly in North America,” Goldman Sachs Group Inc. analysts including Yuichiro Isayama said. “In contrast to many makers that retrenched due to the financial crisis, Bridgestone and Sumitomo Rubber increased capacity and are benefitting from growth in demand amid a global supply shortage,” they said May 12.
Bridgestone shares advanced 24 percent in the past year and settled at 1,814 yen in Tokyo today, while Sumitomo Rubber shares increased 15 percent to 918 yen.
While auto sales in China reached a record 18 million last year, they slowed in 2011 as the nation increased retail gasoline and diesel prices and tightened monetary policy to cool the fastest inflation since 2008. The government increased interest rates and raised bank reserve-ratio requirements to curb price gains that have exceeded the government’s 4 percent target every month this year. Demand for replacement tires is growing in China as car ownership expands, Ikeda said.
Sumitomo Rubber, which controls about 6 percent of the global tire market, said it can process 46,000 tons of rubber a month this year, up 3.5 percent from last year. The Kobe-based company said May 17 it is building a plant in Brazil that will have a capacity of 2,200 tons a month by 2013 and is also expanding production capacity in Thailand and China.
“Our production capacity is not large enough to meet expanding demand,” Ikeda said in Tokyo on May 25. “The shortage may worsen” as global consumption is expected to grow by 3 percent annually in coming years, he said.
Global sales of passenger-car tires are forecast to grow 6.1 percent this year from 2010, while sales of commercial- vehicle tires are forecast to rise 11 percent, International Rubber Study Group forecast on Jan. 26.
Natural-rubber production in key growing countries may miss estimates this year as output slows in the second quarter, the Association of Natural Rubber Producing Countries said yesterday. Production from member countries, representing 92 percent of global supply, may expand 4.9 percent, less than the 5.8 percent forecast last month, the group said in an e-mailed report.
Rubber futures in Tokyo tumbled to 335 yen a kilogram ($4,098 a metric ton) on March 15 from a record high of 535.7 yen reached on Feb. 18. The March 11 earthquake and tsunami disrupted supplies of car parts, forcing Toyota Motor Corp. and rivals to slash output and stoking concerns that tire demand from automakers will weaken. Futures settled at 387 yen today.
The disaster will reduce tire sales for new cars in Japan by about 2 million units from March to June, Ikeda said. The loss may be recouped in the second half of this year as automakers step up efforts to restore production, he said.
“Some of the carmakers may return their production to pre- quake levels by July,” Ikeda said.
The company plans to use 505,000 tons of natural and synthetic rubber this year for tire production, gaining 6.5 percent from last year. Natural rubber represents more than half of the volume, said Shizuma Kubota, general manager at Sumitomo Rubber’s public relations department.
More than 80 percent of the natural rubber used by the company is technically specified rubber, which is cheaper and easier to process than ribbed-smoked-sheet rubber, Ikeda said.
Technically specified rubber for June delivery on the Singapore Exchange closed at $4.62 a kilogram yesterday. The price reached a record $5.75 on Feb. 10 amid speculation the supply shortage may worsen after heavy rains disrupted output in Thailand, Indonesia and Malaysia -- the top-three producers.
Ribbed-smoked-sheet rubber for June delivery on the Singapore bourse closed at $5.14 a kilogram yesterday, retreating from a record $6.488 reached on Feb. 17.
The company expects to buy so-called TSR-20 rubber at $5.5 a kilogram on average for the second quarter of this year, $5.2 for the third quarter and $5 for the fourth quarter as a seasonal increase in supply from Thailand, the world’s largest producer and exporter, will put a drag on prices.
“I don’t expect the price will exceed $6,” Ikeda said. Supply will also increase as trees planted five to seven years ago in Southeast Asia will become available for tapping, he said.
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