On November 25, Nokian Tyres P.L.C. announced plans to reduce production of heavy truck tires and lay off staff to adjust for weaker demand.
The preliminary plan is to change the working pattern of the heavy tyre production to a discontinued five-day three-shift model, and to reduce the work input of approximately 100 factory employees and 15 white-collar officials with lay-offs and possibly with personnel cuts. The production adjustments are estimated to start in January-February 2012 and to continue until further notice.
Nokian said that its passenger tire division has seen no weakening in demand, and expects to report improved sales and operating results for the year.
Is this a harbinger of a weaker 2012 tire market?
Tire Review:
“While this is not huge news (Nokian expected weaknesses in 2012) it stresses how fragile demand is for the pro cyclical heavy and truck tires is in a recessionary environment,” financial analysts from Morgan Stanley reported in an investor’s note published the day of the news.
The analysts view is that this move highlights the possibility of further risks for other players in the market, which have high exposure to truck and specialty tires. In this respect Morgan Stanley points out that Michelin, for example, generates more than 40% of revenue excluding mining and two-wheel tires. By contrast, exposure for Pirelli to this segment is said to be no more than 8%-10% of sales, but the point remains that this scenario could affect other players too.
As quoted by Reuters, Michelin’s Michel Rollier has stated that the global market remains relatively healthy and that the weakness is limited mainly to the heavy truck tire market in Europe.