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March 3, 2011updated 08 Apr 2021 8:13am

GERMANY: Rising rubber prices to hit Continental profits

Tyre and brakes specialist Continental expects natural rubber prices, bid up by speculators to fresh record highs, to wipe out nearly US$1bn in profits this year if it cannot offset the hit.

Tyre and brakes specialist Continental expects natural rubber prices, bid up by speculators to fresh record highs, to wipe out nearly US$1bn in profits this year if it cannot offset the hit.

Chief Executive Elmar Degenhart told Reuters the company would redouble efforts to move away from standard, low margin tyres wherever possible and boost sales of more lucrative high performance tyres to compensate for the drastic rise in costs.

“We already initiated price hikes at the beginning of 2011, but they are not nearly enough to even remotely offset the recent increase in rubber prices to almost $6 per kilogram,” he told Reuters at the company’s annual news conference.

Heavy rains impeded tapping in Thailand, Indonesia and Malaysia, which control roughly 70% of the global output, leading to a series of historic highs since October.

“The supply from producer regions hasn’t matched the average yields of the past and the second factor is that speculation is playing a role,” Degenhart said.

The company aims to keep its adjusted operating margin constant at 9.7% this year despite its expectations that a price for natural rubber above $5.50 per kg will add EUR700m ($972m) in costs.

Commerzbank recently forecast continued high rubber prices this year as China’s car market grows faster than supply, even though 1m hectares of rubber trees planted between 2005 and 2008 can finally begin to be tapped, Reuters noted.

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