Japan tire sales: a good start to Q3

by SR on August 13, 2012

Japan tire sales average % change in sales by quarter and product typre

A good month, as implied by tyre company upward revisions

The Japan Automobile Tyre Manufacturers Association (JATMA) did its usual stealth release of data last Wednesday. We watch this data closely, because it’s timely and gives us clues to auto production – figures of which will not be released until the end of this month – as well as on tyre sales. We watch the tyre sales only because we want to monitor the impact on the three main tyre suppliers in Japan, namely Bridgestone, Sumitomo Rubber and Yokohama Rubber. This month, we have just had results for the April-June 2012 quarter from each of these three companies and so for now there’s not much really to be gleaned from the JATMA data, although it does represent the first month of the new quarter.

In short, July sales were good. Tyres for new cars (OEM tyres) rose 12.9% year-on-year and +4.4% month-on-month to 4,484k units. Replacement tyre sales rose 6.7% YoY and 14.3% MoM to 5,111k units. I’m pleased to see this, because the +6.7% YoY is only the second month of positive year-on-year growth we’ve seen in Japan replacement tyres in 2012, and it’s a solid improvement on the +1% YoY posted in March 2012. Total sales came to 9.59 million units, up 9.5% YoY and 9.4% MoM. All of those month-on-month changes were higher than the median for July – better than seasonally normal, in other words. More importantly (because monthly figures are volatile) cumulative sales for January to July are up 11% compared to the same seven-month period of 2011, to 65.2 million units.

Japan total tire sales, cumulative year-to-date (million units)

The best is yet to come, seasonally speaking

As I explained in this recent post on Bridgestone, production volumes are often most important issue for tyre manufacturers, but over the past year the twin positives of higher tyre prices and falling input costs have created a “golden window” that more than offsets fairly modest volume growth and mediocre mix. (I say mediocre mix because it is OEM tyre sales that are soaring on the back of resurgent auto demand and generally speaking OEM tyre margins are slimmer than the margins on replacement tyres.) So, Bridgestone, Sumitomo Rubber and Yokohama Rubber all revised up their full-year guidance pretty significantly.

Depending on raw material prices I think there could be a little bit left in the tank for profits in the second half. A great deal depends on winter tire sales in the final quarter of 2012 and the first month of 2012. It is this seasonal issue that drives the remarkable surge in replacement tyre sales in the October-December quarter every year, with an increase of 50% being the median change from the July-September quarter (look again at the chart at the top of this page). As you can see, the tyre market in Japan shows very clear seasonal characteristics. Another factor will be the price of oil and thus naphtha and synthetic rubber and even more importantly the price of natural rubber. I expect both to remain weak going forward.

When should you sell these tyre stocks? Offload them as soon as you hear concrete and persuasive talk about the Chinese authorities stimulating the auto market in China. I have said before (see the bottom of this post for the details) and I still believe that commodities speculators buy and sell natural rubber futures based on their view of the Chinese auto market. So if the China auto market is booming, rubber prices will go up and the tyre companies will suffer. The negative impacts of higher natural rubber prices far outweigh the positive impact of more tyres sold in the Chinese market.

Previous post:

Next post: