Here's One Big Winner From the Collapse in Oil Prices: Tire Manufacturers

Cheap fuel means motorists are driving further and burning more rubber

Tires sit in a warehouse at the Pirelli tire factory in the city of Jining in Shandong Province, China on Thursday, February 24, 2011. Despite rising rubber costs, Pirelli's CEO Marco Tronchetti Provera sees a stronger than expected growth for tires globally led by China and the Asia pacific region which has allowed them to raise their revenue forecast for Asia from 15% to 20% growth for 2011. Photographer: Keith Bedford/Bloomberg News

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By Javier Blas

August 11, 2015 at 11:01 PM UTC

This article is for subscribers only.

Few industrial companies will celebrate the collapse in oil prices to below $50 a barrel more than the world’s largest tire manufacturers.

For firms including Bridgestone Corp., Michelin & Cie., Goodyear Tire & Rubber Co., Continental AG and Pirelli & C. SpA, lower energy prices not only mean cheaper synthetic rubber, but also higher demand as motorists drive more.

“We are at a type of sweet spot at the moment,” Continental Chief Financial Officer Wolfgang Schaefer told investors Aug.4 after announcing that second-quarter profit jumped 25 percent from a year ago.

Investors appear to agree: the shares of the top-five tire producers have rallied since oil prices started to fall. Take Goodyear, the U.S. largest tire producer. Its shares are up 25 percent over the last year, while the S&P 500 index -- weighed down by oil producers -- is up 7.4 percent over the same period.

According to the Rubber Manufacturers Association, an industry body, it takes about seven gallons of oil to produce enough synthetic rubber to make a tire. The cost of Brent crude, a global benchmark, has fallen 51 percent over the last year to less than $50 a barrel.

“Tiremaker margins are expanding because of low prices for synthetic and natural rubber,” Kevin Tynan and Tanner Murphy, analysts at Bloomberg Intelligence, said in a report.