Michelin facing incredible pressure due to raw materials prices, CEO says

Article by Christian A., on May 12, 2011

Michelin's next CEO, Jean-Dominique Senard, said at last Friday’s shareholders' meeting that because of high and volatile raw materials prices, the company faces “incredible pressure."

Senard said that despite this, the group's 2011 operating result is expected to increase. He reiterated the long-term targets Michelin established last October, including aiming for operating profit before non-recurring items that’s clearly above 2 billion euros ($2.84 billion) by 2015.

During the shareholders' meeting in Clermont-Ferrand, central France, Senard estimates that for 2011, the price increases in raw materials will have a 1.8 billion euro impact on its accounts.

Senard clarified that a supply squeeze isn’t what they’re worried about. Rather, they’re concerned about price volatility. After current CEO Michel Rollier retires, Senard will take over as soon as shareholders give their approval to his nomination as expected.

Last April, Michelin announced it will increase prices to offset raw material costs. It said that prices will increase over the next nine months to cover 400 million euros of 2011 cost headwinds.

There had been previous increases that cover 1.4 billion. In early May, Michelin said that the price of truck tires will go up to help offset the rising costs. Despite the recent drops from record levels, the rubber prices have remained high.

Physical rubber prices have fallen by over 20% since reaching a record $6.40 per kilogram in February, buoyed up by selling on the Tokyo Commodity Exchange and concerns that a plunge in demand from China, which is the world's largest consumer of rubber, limits the economy.

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