US tyre demand showing ‘signs of recovery’
Tyre demand is picking up in the US, according to analysts and industry associations alike. Industry body RMA (Rubber Manufacturers Association) estimates that US light vehicle replacement tyre shipments increased 7.1 per cent year-on-year in August. US replacement commercial truck tyre volumes were estimated to be up 3 per cent year-on-year.
When you compare this with the share drop reported the same time last year, this is clearly an improvement. However, financial analysts were still optimistic of what this may indicate, despite the fact that is coming from a low base. “Comparison from last year of -9.7 per cent was fairly easy; however, we still view the light vehicle statatistics as strong given one less shipping day (22 days in August 2013 versus 23 in August 2012),” Deutsche Bank’s Rod Lache wrote in an investor’s note dated 10 September.
As a result the analysts estimate light vehicle shipments were up around 11.4 per cent year-on-year. When you consider the third quarter-to-date, the estimate is that light vehicle tyre shipments were up 10.0 per cent, while replacement commercial tyre volumes were down 0.8 per cent quarter-to-date.
Any recovery is good for US tyre makers
This is said to be good news for any domestic US tyre makers. Specifically this makes Deutsche Bank’s estimates that Goodyear will increase its North American replacement tyre volumes 3 per cent in the third quarter “increasingly conservative”. Indeed “we believe that stronger industry volumes, and the associated improvement in the industry’s supply/demand dynamic, should mitigate concerns on the industry’s price discipline”, the analysts wrote.
Therefore their view is that tyre companies such as Goodyear “will continue to generate surprisingly strong profitability”. Moreover, “we continue to view Goodyear’s recent USW contract, which resulted in a deal to freeze and fund their pension, as transformative, as it should ultimately enable Goodyear to direct the majority of their US$650-$700 million per annum of free cash flow towards measures that create value for shareholders” they concluded.