Analysts: Nokian heavy tyre production cuts are warning to other tyremakers
Financial analysts have commented on Nokian’s plans to scale back its heavy tyre production, saying they are symptomatic of the macro-economic environment. Nokian announced the news of the 25 November, following a reported slowdown in orders for the first quarter of 2012. “While this is not huge news (Nokian expected weaknesses in 2012) it stresses how fragile demand is for the pro cyclical heavy and truck tyres is in a recessionary environment,” financial analysts from Morgan Stanley reported in an investor’s note published the day of the news.
The analysts view is that this moves highlights the possibility of further risks for other players in the market, which have high exposure to truck and specialty tyres. In this respect Morgan Stanley points out that Michelin, for example, generates more than 40 per cent of revenue excluding mining and two-wheel tyres. By contrast exposure for Pirelli to this segment is said to be no more than 8-10 per cent of sales, but the point remains that this scenario could affect other players too.
According to the analysts, Nokian’s heavy tyres division generates around 8 per cent of its sales and a similar proportion of its pre-tax profits (EBIT). Nokian reported that production is going to be cut to a five-days three-shift rotation until further notice. Nokian is also looking to lay-off 260 employees in Finland. The moves are not believed to affect passenger car tyres.