The tide could be about to turn for the beleaguered tyres manufacturing industry, according to market analysts.
Morgan Stanley experts are predicting an increase in demand for new tyres, after suppliers have used up all their old stock and need to replenish their shelves.
The market analysts made the observation in an investor’s note issued on 9 April that production cuts of between 40 and 60 per cent in original equipment and 10 to 40 per cent in replacement tyre tyre production in January and February were ‘far more draconian than anticipated’, but nonetheless ‘deliberate and forthright’ action.
The analysts commented: ‘We estimate Michelin’s sell-in volume through the first two months of the year has declined approximately 20 per cent, assuming constant market share. Simply put, we believe this pace of volume decline is not sustainable.”
The rational is that the suppliers who ran down their stock levels rather than buying in new tyres at the beginning of 2009 will soon have a low inventory which will need to be replenished.
The knock-on effect will be more orders for tyres manufacturers.
The analysts added: “We forecast Michelin tyre volume down 6.6 per cent for the full year, implying rest-of-year volumes down 3.9 per cent.
“At a minimum, we expect the extraordinary pace of volume decline to diminish sharply and soon.’
Denna Bowman, Head Office