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December 23, 2002 01:00 AM

Raw materials costs pinched tire industry

Miles Moore
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    The price of raw materials-particularly natural rubber (NR)-reasserted itself as a major influence on tire and rubber product manufacturing in 2002.

    The Economist Intelligence Unit, a London-based business forecasting group, predicted in November that NR prices would climb more than 17 percent in 2003 and more than 25 percent in 2004, fueled by major adjustments in supply vs. demand and the probable appreciation of Southeast Asian currencies.

    Meanwhile, on Dec. 6, the price of Standard Indonesian Rubber (SIR) 20-the variety of rubber most often used by U.S. tire makers-was 43 1/4 cents per pound delivered to Norfolk, Va. This was slightly less than the 48 cents SIR 20 reached Sept. 9, but still more than 50-percent higher than the 27 cents at which the rubber grade stood at the beginning of 2002.

    NR prices yo-yoed throughout the year, climbing to the low 40-cent range by mid-June, then falling by early August to the mid-30-cent range before reaching their September peak.

    Any number of reasons were given for this roller coaster ride-weather disruptions caused by ``El Nino,'' growing demand for NR from China, speculation by Singaporean traders and the sudden closing of two major NR factories in Thailand.

    These conditions gave aid and comfort to the goals of the International Rubber Co. Ltd., a cartel formed by Thailand, Indonesia and Malaysia to keep NR prices at premium levels. Created in a formal ceremony Aug. 8, the IRC has a stated purpose to cut NR output in its three member nations by 4 percent this year and exports by 10 percent.

    Still, those goals may be compromised by rubber production in other countries-particularly India, which late this year overtook Malaysia as the world's third-largest NR producer, according to the EIU.

    India's natural rubber industry has been plagued by poor quality control, but Indian business and government officials consulted with Goodyear executives earlier this year on how to improve production and quality.

    Also, NR traders have noted a recent falloff in demand for autos-always a major negative for rubber prices.

    Tire makers cited rising raw materials costs as part of the reason for raising the price of their products. Kumho Tire USA Inc. and Yokohama Tire Corp. announced price hikes effective Nov. 1, while Cooper Tire & Rubber Co. raised its prices an average of 5 percent effective Dec. 1. Bridgestone/Firestone and Pirelli Tire North America Inc. said they plan to boost prices up to 5 percent, effective Jan. 1.

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