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March 29, 2018 02:00 AM

Continental warns of higher rubber costs this year

Shahrzad Pourriahi
European Rubber Journal
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    Fluctuations in the prices of raw materials could have a significant impact on Continental this year.

    HANOVER, Germany—Continental A.G. has warned about its exposure to fluctuations in raw materials prices, which it expects will continue to rise in 2018. The Rubber Group—the tire division and ContiTech—was particularly affected by oil, natural rubber and synthetic rubber prices, according to Continental, which noted that certain synthetic rubber costs appear as though they will increase again.

    The firm said that any costs that cannot be passed on to customers could reduce income between $123 million and $246 million.

    Continental also is looking at potential impacts from stricter environmental requirements, which will apply for the plants operated in China in 2018. Theses, the company said, could "could result in the closure of plants, and thus loss of capacity, which could result in price increases."

    There is a chance that the price fluctuations could have a positive impact on Continental's earnings this year, but that is dependent on prices for natural and synthetic rubber settling down at the level near that of the second half of 2017. And Continental isn't anticipating price stabilization yet.

    "We currently anticipate that prices, particularly of rubber, will rise again over the course of 2018," Continental said, adding that is faced considerably higher raw material prices last year. Given the assumed increase in demand for the global tire repalcement and industrial markets, the firm is preared to face increased costs in the coming months.

    Last year, the average price of the natural rubber TSR20 increased by 20 percent on a U.S. dollar basis, while increasing at an 18 percent rate on a euro basis. During the same time period, the average price of ribbed smoked sheets (RSS) increased by 22 percent on a U.S. dollar basis and 20 percent on a euro basis.

    The average price of butadiene, the main input material for synthetic rubber, for the year increased by more than 30 percent year-on-year both on a US dollar basis and on a euro basis in 2017.

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