Today's barrage of advertisements included something I need. Tires-- four of them. The least expensive tire for my car was $110. After balancing, mounting, exchange fee, taxes (you know the drill), a set of four will be in the $500 range. If you happen to drive an SUV with 19 inch wheels, drag that home equity loan paperwork out because you are roughly talking $1000. What's going on? It seems a perfect storm has hit the tire buying public.
In September the US imposed an additional 35% tariff on Chinese tires. In response China said something nasty about US chickens. This is the problem with trade wars. Next up is the booming economies of the emerging markets. As incomes rise, goodbye scooter, hello BMW. More raw materials are needed to meet increased demand. Today Bloomberg reports that "Goodyear, the largest U.S. tire maker, expects raw-material costs to jump 35 percent for the fourth quarter." A key raw material for tire production is natural rubber.
Natural rubber makes up about 25% of a tire depending on make, size, and other factors. Natural rubber prices have risen a three-fold since 2008. Floods, aging trees, speculators, and other factors are at work. More trees have been planted but it takes years for them to produce. Manufacturers are conducting research on synthetic materials to reduce the amount of natural rubber used in tires. Again, another slow process.
The Market Oracle gives some suggestions to capitalize on the rubber shortage. EWM is on my list of investment recruits. In the meantime, I still have High Hopes for getting a new set of tires. Oops, there goes another rubber tree plant!
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