The price of rubber, and in turn the price of tyres, is set to rise as an increase in emerging market car sales is putting more and more demand on the rubber industry. Record car sales in China as well as skyrocketing vehicle production in Japan is expected to fuel record tyre sales by the end of this year.
During the first half of this year, China sold more vehicles than the total number produced by General Motors and Volkswagen put together in the same period, and these are the two biggest car makers in the world. Japanese vehicle production is also expected to be back in full swing by the end of the month, after Earthquake devastation caused factories to close in March.
Experts say the growing demands in China and increased production in Japan will put big strains on the tyre industry. According to a recent Bloomberg report, tyre stockpiles will be at a four-year low by December, while Citigroup Inc. estimates that rubber prices will rise 18 per cent by the end of the year.
The biggest tyre company out there, Bridgestone, is also said to be taking more orders for tyres than it can handle, while at the same same, the capacity to manufacture more is being hindered by bad weather conditions in Thailand where harvesting takes place.
Arifumi Yoshida from Citigroup predicts tyre purchases will increase 6.5 per cent this year and a further 5.7 percent in 2012. He says much of the backlog will occur due to the collapse and bankruptcy of Lehman Brothers Holdings Inc. in 2008, one of the biggest investment banks in the US. Yoshida said,
"The global tyre market has never been so tight. Tyremakers can’t respond quickly enough to demand because they suspended expansion plans after the Lehman shock."
Bridgestone and Michelin & Cie. raised truck and bus tyre prices by as much as 10 per cent in Japan this month, while Bridgestone’s US unit is expected to raise prices by as much as eight per cent starting in November.