Tyres business stands to gain from lower crude prices.
Extracted from TheEdge daily dated 14 Aug 2015
http://sdb.theedgemarkets.com/2015/SDBse...j9qj0d.pdf
Tyre makers — big winner from collapse in crude prices
NEW YORK: Few industrial companies will celebrate the collapse in oil prices to below US$50 (RM201.50) a barrel more than the world’s largest tyre manufacturers. For firms including Bridgestone Corp, Michelin & Cie,
Goodyear Tire & Rubber Co, Continental AG and Pirelli & C SpA, lower energy prices not only mean cheaper synthetic rubber, but also higher
demand as motorists drive more.
“We are at a type of sweet spot at the moment,” Continental chief
financial officer Wolfgang Schaefer told investors on Aug 4 after an-
nouncing that second-quarter profit jumped 25% from a year ago.
Tyre makers have surged over the past 12 months. Continental (red) has led gains of five major producers including Pirelli (purple), Bridgestone (green), Goodyear (white) and Michelin (cyan).
Investors appear to agree: the shares of the top-five tyre producers have rallied since oil prices started to fall. Take Goodyear, the US’ largest tyre producer. Its shares are up 25% over the last year, while the S&P 500 index weighed down by oil producers is up 7.4% over the same period.
According to the Rubber Manufacturers Association, an industry body, it takes about seven gallons of oil to produce enough synthetic rubber to make a tyre.
The cost of Brent crude, a global benchmark, has fallen 51% over the last year to less than US$50 a barrel. “Tyremaker margins are expanding because of low prices for synthetic and natural rubber,” Kevin Tynan and Tanner Murphy, analysts at Bloomberg Intelligence, said in a report. The industry’s gross margin rose to almost 27.5% in the first quarter, the highest in at least 15 years, according to data compiled
by Bloomberg Intelligence .
Low oil prices have another indirect effect: cheaper gasoline and diesel mean that motorists are driving more often and further away.