Cooper, Goodyear Shares Jump After US Tariff On China Tires
By Kerry Grace Benn, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Shares of Goodyear Tire & Rubber Co. (GT) and Cooper
Tire & Rubber Co. (CTB) jumped Monday after the U.S. government imposed a
temporary tariff of up to 35% on Chinese passenger and light truck tires.
The move comes as a response to what the U.S. International Trade Commission
called a surge in Chinese tire exports that has rocked the U.S. tire industry
and displaced thousands of jobs, U.S. Trade Representative Ron Kirk said Friday.
The tariff will be in effect for three years and the rate will decline each
year.
Cooper's shares were up 12% at $16.27 in recent trading, while Goodyear's were
up 4.5% at $18.05. Both saw heavy volume. Cooper's shares are up 20% in the last
month and 46% in the last year, while Goodyear's have edged up 1.7% in the last
month and are off 1.4% in the last year.
The United Steelworkers union had argued that a surge of Chinese tire imports
cost U.S. jobs and wasn't supported by tire makers, most of whom also make tires
in China and had already abandoned making low-cost tires in the U.S.
The U.S. tire companies are going to rush in to try to get the low end of the
market that China had and are really going to grab market share in the segment,
Wall Street Strategies analyst David Silver said.
He added a lot of the companies got rid of their U.S. operations for the
lower-end tires in recent years, so the argument that an influx of Chinese tires
is costing U.S. jobs, although true, is "not a new occurrence."
Between 2004 and 2008, China's tire production capacity more than doubled and
is expected to jump another 16% by 2010. Meanwhile, four U.S. tire plants closed
in 2006 and 2007, and three more are planned for closure this year.
The move is also expected to result in U.S. consumers who buy low-end Chinese
tiers having to pay more as producers look to fill the void in that part of the
market.
The tariff is a positive for both companies when it comes to pricing, BB&T
Capital Markets analyst Anthony Cristello said. He said removing consumer tire
imports from China from the equation will result in a decrease in supply at a
time where the industry may also see an increase in demand.
But "I'm not sure how much thought went into this," Cristello said. U.S.
consumers have been deferring buying new tires for the last six to 12 months,
but at some point they can't defer anymore, meaning replacement demand is going
to come at a time when there are going to be fewer choices that are more
expensive to the consumer.
Cristello also said the tariff will likely change international dynamics - the
companies may have to send tires made in China into Europe, South America and
other places, which could create an imbalance outside the U.S.
Tire companies like Goodyear and Cooper will be able to get some tires
produced in other low-cost countries such as Indonesia, said Keybanc Capital
Markets Analyst Saul Ludwig. But such countries don't have the extra capacity to
produce 46 million tires, which he said was the number of tires imported into
the U.S. from China last year.
Tire production in the U.S. will likely increase, Ludwig said, and higher
capacity use at factories could lead to increased profitability.
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@
dowjones.com
(Peter Fritsch of The Wall Street Journal contributed to this article.)
(END) Dow Jones Newswires
09-14-091157ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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