Auto Companies Struggle with Tire Supply Issues Amid Russian Rubber Ban
Major Auto Companies Grapple with Tire Supply Shortage
Starting this July, leading auto companies are confronting a significant challenge in sourcing tires due to the ban on essential rubber products from Russia. This ban, a part of the EU's 10th sanctions package, encompasses critical materials such as Styrene Butadiene Rubber and Carbon Black N220 grade, which are indispensable for tire manufacturing. The situation has been aggravated as the EU has introduced a 14th sanctions package against Russia in response to its actions in Ukraine.
In the European market, the prices of Carbon Black N220, utilized in both new vehicle tires and replacements, have witnessed a sharp surge in the second quarter of 2024. The spike can be attributed to the escalation in crude oil prices, which surged from USD 80 to USD 89.7 per barrel before stabilizing at USD 85. Subsequently, these increased costs were passed on to the consumers of Carbon Black. Moreover, the ban on Russian imports has led to a demand premium, with FOB Novorossiysk deliveries being evaluated at over USD 1300 per metric ton by June 2024, marking a 60% year-to-date increase.
The demand for Carbon Black surged from February onwards, coinciding with the expansion of inventories in the tire supply chain. Michelin reported a 3-5% surge in replacement tire sales across Europe as the summer travel season commenced. Nevertheless, exorbitant surcharges on shipping from Asia and India to Rotterdam have further inflated costs, with shipping prices witnessing a surge of USD 200 to USD 250 per metric ton.
Key Takeaways
- EU sanctions on Russian rubber imports disrupt tire production.
- Surge in crude oil prices and ban on Russian imports elevate Carbon Black costs.
- Michelin witnesses a 3-5% growth in replacement tire sales across Europe.
- Steep shipping surcharges from Asia and India to Rotterdam further inflate costs.
Analysis
The EU's sanctions on Russian rubber imports, alongside the ascending crude oil prices, have intensified tire production expenses, impacting major auto companies and suppliers like Michelin. In the short term, this has resulted in heightened Carbon Black N220 prices and amplified shipping expenses. However, in the long run, this scenario might necessitate alterations in supply chain strategies and potential diversification of raw material sources. Consequently, it could lead to an increase in consumer tire prices and potentially reshape global trade dynamics in the automotive sector.
Did You Know?
- Styrene Butadiene Rubber (SBR)
- Insight: Styrene Butadiene Rubber is a synthetic rubber copolymer comprising styrene and butadiene, widely utilized in tire manufacturing due to its exceptional abrasion resistance and aging properties. The import ban from Russia has significantly disrupted the supply chain for major auto companies in Europe, resulting in escalated costs and potential production delays.
- Carbon Black N220
- Insight: Carbon Black N220, a type of carbon black, is produced through the incomplete combustion of heavy petroleum products. It serves as a reinforcing filler in rubber products, particularly tires, enhancing their durability and wear resistance. The EU's sanctions on Russian imports of Carbon Black N220 have led to a supply shortage and a substantial price increase, affecting the overall tire production cost.
- FOB (Free On Board) Pricing
- Insight: FOB pricing denotes a trade term where the seller delivers the goods on board a ship at a specified port, with the buyer assuming responsibility for the goods from that point. In the context of the article, FOB Novorossiysk deliveries of Carbon Black N220 were valued at over USD 1300 per metric ton, indicating the price at which the goods were available for export from the Russian port of Novorossiysk. This pricing mechanism is crucial for understanding the logistics and financial implications of international trade in commodities like Carbon Black.