Declining Material Costs may Harm Industry, Say S&P

5th September 2007 | 0 Comments

According to a new report released by Standard & Poor’s, global tyre manufacturers may actually feel more pressure on margins and cash flow as the prices of raw materials decline. The financial and investment specialist added that the industry could suffer if manufacturers take lower costs as a signal to reduce prices in order to gain market share. The reduced income and cash flow from such a price war would in all likelihood more than cancel out the benefits of lower material costs.

“This is because pricing discipline in the industry may fade if tyre makers start reducing prices on the back of lower input costs in the expectation of gaining market share,” said Standard & Poor’s credit analyst Werner Staeblein. “Therefore, declining raw-material prices could spark more price competition in the industry with likely more negative effects on earnings and cash flow generation than the positive effect from lower input prices.”

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Category: Product News