Changes in the prices of rubber : vice and virtues for the tire specialists

It is a real relief for the tire specialists, the rubber would have finally finished with the roller coaster. Since February, the price of the natural rubber undergoes a correction severe enough and continues its course. It went from a peak to 123 usd in Singapore for less than 80 dollars today per kilo. A decrease of 35% in six months… In Tokyo, the price also fell between February and June, but it is stable for around 200 yen per kilo, compared to 380 yen in the beginning of the year. The month of February was a peak after a year of continuous increase. A kilo of rubber was trading around $ 72 in early 2016 in Singapore.

Speculations are unjustified after the thai floods

This rise was a result of the severe weather that had flooded the crops of rubber trees in Thailand, the world’s largest producer (40% of the total) of natural rubber in the world. For several weeks, the rubber tree thai were unusable.

In Tokyo, the authorities of stock market have forced investors to indicate their positions in order to control the excessive motion, which were above all believe in actions speculative. This measure immediately led investors to withdraw their investment, plunging the price of natural rubber. Because in reality, the operators of rubber-natural had continued to supply the market from their stocks. The surpluses accumulated by an abundant supply for the past two years had actually helped to offset the decline in production. So far, investors don’t gamble yet on a course to 55 dollars in 2015 considering that the demand should remain solid.

The tire specialists relieved

For tire specialists, it is a relief even if in reality, they are variously affected by the impact of the course. According to Xavier de Buhren, managing director of French equities at Mirabaud Asset Management, “the challenge is their ability to pass the higher prices on their prices, knowing that they revise their prices twice a year”.

On one side, their supplies are locked by the contract in terms that can at once be virtuous if the courses are taking off, as vicious, by depriving them of a lower class.

“To protect against the problems of supply and price variations, the tire specialists try to cover themselves by putting the hand on large rubber plantations. “As well, Michelin has completed the redemption of SIPH, a company that operates close to 40,000 hectares of rubber trees in West Africa. In 2015, he had already forged a partnership with Barito Pacific Group to exploit 88.000 hectares of rubber trees in Indonesia.

Dichotomy between premium brands and low cost

The other way to reduce their exposure to the natural rubber is to diversify their resource. Thus, it is possible to add a synthetic product, but this solution is not satisfactory. “The synthetic materials derived from petroleum have neither the holding nor the stiffness of the natural rubber, and it has found nothing to replace it”, explains Xavier de Buhren. These are actually the marks of entries range that will add to the synthetic rubber to limit the impact of the natural rubber. “Tire specialists premium have managed to reduce to 25% the share of rubber in their selling prices thanks to their added value, to the manufacturers bottom of the range, are impacted to the tune of 50%,” recalls Xavier de Buhren.

In other words, the large premium brands such as Michelin, Pirelli, or Bridgestone are pretty well protected. Their secret is therefore to secure their supply and to invest in R&D to limit the use of the raw material.

The other lever is to position itself on new market trends such as “the tires high and wide, in excess of more than 17 inches, which are very lucrative and the demand is strong growth with the development of the SUV,” notes Xavier de Buhren.

The back ill-advised Pirelli in the stock Exchange

Therefore, the positions of the investors are very varied. As well, Pirelli has been estimated that the elimination of the tension on the rubber provided an excellent window of shooting for an ipo after its withdrawal in 2015 following its takeover by ChemChina. It is thing made since Wednesday, October 4. The pneumaticien Italian has returned to the Milan stock Exchange. But it would seem that the prospects were too optimistic. A few days before the first day of trading, Pirelli had revised downwards the price range of the ipo price from 6.3 to 8.3 envisaged in a first time, to a maximum of 6.7 euros. At the end of its first day of trading, the stock ended down 1.92% to 6,375 euros. “The action is still too valued,” said one trader quoted by Reuters.

Another example, Michelin has seen its Stock price increase by only 16% since the beginning of the year despite the fall in the price of the raw material. For Xavier de Buhren, there is nothing surprising: “The title is less correlated to the course of the rubber. Investors value the ability of Michelin to hedge against price variations and to enhance better the high technology added to their tires.” Michelin has demonstrated its pricing power” in deciding to increase its prices in the first half. Result, net result (+12%) rose faster than revenue (+4.1 per cent).

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