Continental and Michelin are accelerating expansion in Russia to tap growth while avoiding import restrictions.

Continental will decide on building plants in Russia and India before the year is out, car tyre division head Nikolai Setzer told Bloomberg News, while Michelin CEO Michel Rollier said his company would have to expand its Russian facility because of high import costs. Russia has imposed 20% tariffs on imported tyres.

Setzer said: “It’s obvious that we need to have local production in Russia if we want to be a strong player there. We’re still evaluating different concepts and ideas, but we do want to have a decision this year.”

The decline in new car sales in Russia has slowed this year, and could rebound by as much as 15% to 1.6m vehicles after plummeting 56% last year, according to PricewaterhouseCoopers.

Continental  predicts large growth potential for Russia and wants to avoid the cost of shipping from plants in Europe and Malaysia. However, Setzer declined to comment on investment or production targets.

Continental already has a joint venture to make and market car tyres in Omsk, Russia, with Sibur-Russian Tires, a unit of petrochemical company Sibur Holding.

Increases in the price of natural rubber and oil are leading to price hikes for vehicle tyres. Bloomberg said the price of natural rubber was 47% higher than a year ago while crude oil has risen 39% since May 2009.

Setzer said: “It’s already hurting us. Even if raw material prices plummeted right now, we’d have significant costs this year.”

He added that natural rubber prices are unlikely to decline before June or July, and any drop would take three to six months to have an effect on production costs.

Continental is raising car tyre prices by 5% in Europe on 1 June and is planning a second increase of 6% in North America in mid-2010, Setzer said. The company may add to price increases it has already imposed in some Asian markets, he said.

Michelin also said it would raise prices in a bid to defend margins against higher rubber and oil costs.

Rollier said: “Our objective is to compensate for raw material cost increases by raising prices. We’re confident we will achieve that.”

Michelin said last November it would double car tyre capacity in Davydovo, near Moscow, and build a factory to serve Russia’s truck tyre market, Europe’s largest.