Volatile commodity prices could spur Continental to raise tire prices, company official warns

The prices of commodities have surged over the past two years. The uptick has been primarily driven by fundamental economic principles, with burgeoning global demand eroding stockpiles. Raw material prices, however, have become exceedingly volatile recently, leading some companies to announce potential price hikes.

Surging commodity costs impose a destabilizing effect on worldwide governments, helping to drive the wave of revolutions that swept through the Middle East and North Africa this year, resulting in the toppling of the autocratic governments in Tunisia, Egypt and Libya.

Rubber prices have not been immune from this phenomenon, with prices of the raw material climbing precipitously over the past few years. With rubber costs continuing to change erratically, automotive supplier Continental AG said this week it could raise tire prices over the coming months.

The head of Continental's tire division, Nikolai Setzer, said the underlying volatility in commodities markets was necessitating the potential price hikes. The Wall Street Journal reports Setzer, who made the remarks on Wednesday at the Frankfurt Motor Show, affirmed prices for synthetic rubber prices continue to surge, reducing the company's profit margins.

The company is failing to achieve business cost reductions as a result of the mounting costs, analysts assert, worrying investors. Continental estimates it will spend roughly $1.1 billion this year on record-high raw materials costs, and will adjust prices as it monitors "the cost situation from month to month," Setzer affirmed.

The news was unsurprising given commodities' volatility, experts said. Rubber prices declined in trading on Wednesday morning, however, as investors grew increasingly concerned that Asian countries' torrid economic expansion is slowing, and as doubts persisted over the European Union's ability to effectively contain its sovereign-debt crisis, which has spread from periphery countries to France and Italy.

Rubber futures for February delivery declined by as much as 1.6 percent, trading at roughly $4,670 per metric ton on the Tokyo Commodity Exchange. Rubber prices rebounded later in the day, though only slightly, trading at $4,691 per metric ton.
"The downward revision of growth forecast of Asian countries raised concern that slowing economy will hurt demand," DS Futures Co. analyst Chaiwat Muenmee told Bloomberg News. "Besides, debt issues in Europe remain unsolved."

Continental has already raised the price of its tires multiple times this year, according to The WSJ, though company officials reported initial winter tire sales have been strong. They project sales will at least match the high levels reached last year, when sales were supported by a bill in Germany that required car owners to fit winter tires.