HILTON HEAD, S.C.—Despite record high levels, raw material costs for tire manufacturing still haven't peaked and probably won't until 2012, according to Bill Hyde, director-C4 olefins and elastomers at Chemical Market Associates Inc.
“You can expect raw materials to increase this year and next,” said Hyde to attendees at the 27th Annual Clemson University Tire Industry Conference, held April 6-8 at Hilton Head. “Then there will be a bit of a decline in 2013, back roughly to where we are today.”
Raw material costs in Asia, though relatively high, should drop below prices in the U.S., he said.
As part of its global consulting business, CMAI recently introduced a Tire Raw Material Cost Index to offer what Hyde called an independent, impartial view of the tire raw materials market.
Developed at the request of clients, the CMAI Tire Index is designed to track raw material price changes for tires, according to Hyde. “It doesn't measure the all-around cost of making a tire, just raw material costs,” he said. “It reflects generic costs rather than producer-specific costs.”
The CMAI Tire Index will be an aid in negotiations between tire makers and auto manufacturers, he said.
The difficulty in creating a tire index for raw material costs, according to Hyde, is that you are dealing with two distinctly different economic regions—developed and developing.
“China says you need to stop talking about it as a developing nation, but in many ways it is still very much developing,” he said.
Whether speaking of developed or developing nations, however, the last few years have been the worst economic time most people can remember, although the recovery has been relatively quick, according to Hyde.
Worldwide growth is currently in the 2-percent range, with Europe and Japan lagging, he said. “The U.S. is in the 3½-percent range going forward. But the real growth will be in the so-called 'BRIC' nations—Brazil, Russia, India, and China.”
Vehicle sales are a key indicator as to the price of tire raw materials, Hyde said. “The U.S. took a significant reduction in vehicle sales in 2007-09, and won't get back to 2007 levels for some time.”
“Western Europe didn't see as much of a reduction as the U.S., and sales there have been stable,” he said. “But China is a different story. China has seen substantial growth in the sale of vehicles with displacements smaller than 1,600 cc. They may be tiny cars with tiny tires, but 17 million tiny cars mean 68 million tiny tires.”
Oil prices will stay high, but they won't reach $150 a barrel as some have suggested, according to Hyde. “There's no justification for that in the supply-demand balance.”
The U.S. petrochemical industry has access to low-cost natural gas, which is fantastic for North American plastics makers, Hyde said. “If you're making polyethylene, this will keep you globally competitive.”
But synthetic rubber producers in North America are facing low supplies and all-time record prices for butadiene, Hyde said.
Nevertheless, SR prices will remain relatively inexpensive over the next couple of years compared with natural rubber, he said.
“Natural rubber is not something you can get more of by working overtime,” he said. “Supplies and prices will be difficult for some time.”