News from Notch Consulting, Inc.

September 11, 2011

Are We Facing a Tire Shortage?

Filed under: Carbon Black, General, Rubber Chemicals, Silica, Tire Cord, Tires — Notch @ 8:40 pm

Asks Tire Review.

According to an official statement Bridgestone released to the Nikkei, the company is expected to face a shortage of an estimated 500,000 tires this year, roughly 5% of domestic OEM orders received.

The regulatory filing went on to explain that Bridgestone’s seven domestic plants making passenger car tires are “operating around the clock and have no room to raise output.” Bringing in tires is the obvious option, but “procuring tires from plants overseas appears to be difficult due to strong demand there,” the Nikkei report said.

However, not all indicators are positive, and there are some potential dark clouds on the horizon. In particular, analysts noted that Bridgestone indicated that it did not plan to raise tire prices further to counter higher raw material costs.

Morgan Stanley’s concurred with this analysis and even put it a grade stronger. These comments “appear in sharp contradiction” the bankers said in an investor’s note published Sept. 5, adding: “high demand and low capacity are usually the perfect environment to raise tire prices – this is what the tire industry has consistently done in the last 12 months.”

Their view, based on comments from peers in the tire industry, is that it is becoming clear that volumes are softening in the developed markets. “Hence, one potential explanation for the slightly odd statement above may simply be that we have a combination of growing capacity, softening demand and lower raw material costs,” the analysts surmised, with a warning: “If companies shift towards market share gain rather than price discipline we could see considerable more pricing pressure in 2012.”

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