Tyre makers face margin squeeze -according to S & P report

New York -  Standard & Poor's equity rating service has published a new report titled, "Peer Comparison: Global Tire Makers May Face Pressure When Raw-Material Prices Decline".

The report suggests that tyre makers may seek to win market share by reducing prices as raw materials costs decline. The report concludes that falling raw materials costs may lead to poor price discipline and thence to lower profitability.

Standard & Poor's says its long-term analysis of industry profitability has shown that tyre makers achieved improved margin despite higher input prices in the five years preceding 2006.

For example, a comparison of the price development for natural rubber (one major input factor in the tyre production process) with the average EBITDA margin achieved by a sample of nine tyre companies shows that the industry expanded its margin levels to about 14 percent in 2005 from about 10 percent in 2001, despite rising natural rubber prices, mostly due to rational pricing behavior in the industry.

The picture in 2006 was only different from preceding years because raw-material prices surged faster than tyre makers were able to raise their own selling prices in the continued effort to recover the incremental burden from higher-priced input costs.

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Press release from Standard & Poor's

Link to report on S&P website. Look for report title, published at 03:44:57 on 2007-Sept-05