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Some more news from the Financial Times 01/11/2010

Cost of rubber goods set to rise

The cost of tyres, gloves and condoms is set to rise following a 65 per cent jump in theprice of natural

rubberin the past year. The surge is the result of heavy rains in the main rubber-producing region ofsouth-east Asia, which have disrupted rubber tapping. The rubber price has tripled in two years,surpassing the record level set in 1952 when fears about the potential spread of the Korean Wartriggered panic buying.

That is putting pressure on manufacturers to raise prices or face lower margins. Majortyre companiesincluding Bridgestone,Michelin,GoodyearandContinental have raised prices by 5-15 per cent thisyear and some businesses have announced a further round of price increases. Continental is to putprices up by 5 per cent from the start of next year, citing the currently very high price level for themain types of natural rubber used in the production of car tyres. Goodyear last week reported a lossfor the third quarter in spite of its highest sales in two years, sending the shares tumbling 12 per centin two days.

Adam Glickman of Condomania, one of the largest speciality condom retailers in the US, said the priceof condoms had risen 10-20 per cent in the past year and manufacturers were warning of furtherincreases. The branded condom market is dominated by SSL International, the London-basedcompany that owns the Durex brand and is being acquired by Reckitt Benckiser, as well as Church &Dwightof the US and Australian-listed Ansell.

Lim Cheong Guan, executive director of the worlds biggest rubber glove manufacturers, MalaysiasTop Glove, said it was forced to raise prices in order for us to sustain our business.

The benchmark rubber price, ribbed smoked sheet 3 or RSS3, was quoted last week at $4.05 per kgin Bangkok, according to the Rubber Research Institute of Thailand, just short of the all-time high from

April of $4.10 per kg. Analysts expect prices to remain high. While supply has disappointed, demand isrebounding from the lows of the financial crisis.

Global light vehicle sales will rise 10.5 per cent this year, according to consultancy JD Power, whiletyremaker Pirelli estimates demand for truck tyres has risen by more than a half in markets such asChina so far this year. Jom Jacob, senior economist at the Association of Natural Rubber ProducingCountries, said he expected the tight situation in the rubber market to worsen: The concerns overnatural rubber supply are likely to persist until the end of 2011.

Carmakers rethink troubled marriagesFinancial stress can make or unmake a marriage. In business, some of the best recent evidence forthis has come from Japanese carmakers and their unsettled ties with foreign producers. SinceLehman Brothers collapsed in September 2008,Suzuki has swapped a fading partnership withGeneral Motorsfor a fresh one with Volkswagen. Fordhas all but abandoned its 31-yearcommitment to Mazda, and Mitsubishi Motors once an unhappy bride to Daimler has pursued apost-break-up romance withPSA Peugeot Citron.

Unlike larger, richer rivals such as Toyotaand Honda, mid-size Japanese carmakers have long reliedon foreign allies for manufacturing scale and access to overseas markets. The recent shifts in theirglobal relationships reflect their diverging strategies and prospects. The latest change emerged in mid-October, when news leaked that Ford planned to reduce its 11 per cent stake in Mazdato less than 3

per cent. Ford, which first partnered with Mazda in 1979, had controlled a third of the Japanesecompany until 2008, but has since turned inward to nurture its core brand.

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Problems had been building for some time. Their shared North American factory in Flat Rock,Michigan, was built in 1988 to produce Mazda 6-series and Ford Probe mid-size saloons. But thepotential for parts-sharing and other synergies shrank in 2005, when Ford converted its half of theplant to production of Mustang sports cars. More recently, Mazda has turned to Toyota for petrol-electric hybrid drives, snubbing a rival hybrid system developed by Ford. The companies werealready estranged. Now theyre moving towards a formal divorce, says Koji Endo, an analyst at

Advanced Research Japan.

The question for Mazda is whether it can flourish independently. The company is betting it can makeup for lost scale through innovation. Last year it raised Y96bn ($1.2bn) in new equity, mostly forresearch and development. One result has been its new SkyActiv series of fuel-saving technologies highly efficient petrol engines coupled with lightweight steel frames.

To capitalise on such advances Mazda needs to overcome an over-reliance on exports that has left itvulnerable to a rising yen. Mazda shipped 61,348 vehicles from Japan in September, more than twiceas many as Honda a company three times its size. Takashi Yamanouchi, Mazdas chief executive,says the Y30bn in operating profits the company has forecast for the fiscal year to March couldvanish with the surging Japanese currency. There has been speculation that it will build a wholly

owned North American plant, perhaps in Mexico, but that could take several years. In spite of itsproblems, Mazda appears determined to protect its new independence unlike the industrys twoother divorcees, Suzuki and Mitsubishi, which have recently found new partners.

In December, Suzukisigned a deal with VWin which the German group bought 19.9 per cent ofSuzuki for Y222bn. The agreement came a year after GM, Suzukis partner since 1981, sold itsremaining 3 per cent stake as part of its ultimately unsuccessful fight to stave of bankruptcy. At firstglance, Suzuki would seem to have less need for an alliance than other mid-size Japanese producers.Cash-rich and consistently profitable, it has prospered thanks to a prescient bet on the Indian market,where small cars made by its majority-owned Maruti Suzuki subsidiary claim half of the fast-growingmarket. But Osamu Suzuki, chief executive, says it still needs a big brother to give it scale andaccess to expensive new technology, such as hybrid and electric drives.

Mitsubishi, in contrast, has been supported by other companies in the Mitsubishi group since Daimlerended their partnership in 2005. Last year itsought a new capital alliance with Peugeot, but theFrench company worried, perhaps, about the burden of paying dividends on Y490bn of Mitsubishipreferred shares held by Mitsubishi companies declined. Instead, the companies have opted for amore casual agreement to co-develop electric vehicles. In October Mitsubishi began building battery-powered Peugeot iOn and Citron C-Zero ultra-compacts for sale in European markets.

Group plans to play loyalty card in India

Groupe Aeroplan, which runs the UKs Nectar loyalty card program, is to take the concept to India one of the mostfragmented retail markets in the world.

Loyalty cards are popular in the UK, where more than two-thirds of grocery shopping is done throughonly four stores. But they have yet to make headway in India, where the sector is dominated by open-air bazaars and small family-run shops. Deloitte estimates that the top five retailers control only 2 percent of Indias grocery business.

Undeterred, the Canadian group plans a coalition card by which loyalty points can be gleaned from aconsortium of service providers, including retail within the next 18 months. Rupert Duchesne,president and chief executive, said any program would depend upon a national presence, which Indiahas in sectors such as telecommunications, airlines, financial services and petrol. All these look like

elsewhere in the world, he said. Retail is getting there quickly. We are starting to see chains: TataGroup and Future Group have substantial retailing presence. However, retailers in India have only a

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fraction of the clout they have elsewhere in the world. Sales even at leading retailers, Deloitte says,are minuscule by comparison internationally.

Wary of alienating tens of millions of independent shop owners, New Delhi has barred foreign directinvestment in retailexcept in the wholesale business and single-brand stores. Even in single-brandretail, foreign investment is limited to 51 per cent, which has deterred potential entrants including Ikea.

Indian companies such as Future Group, Reliance Industries, Tata, Bharti and Godrejhave all beendeveloping their own retail chains in sectors ranging from groceries to furniture to electronics butlack the deep pockets and logistics for faster expansion.

New Delhi now considers whether to open multi-brand retail to foreign direct investment, but aprominent Indian entrepreneur with interest in the sector says that outcome is 50-50. Technopak, aNew Delhi-based retail consultancy, estimates modern, organised retail, even with limited foreignparticipation, will increase by about 40 per cent a year during the next four years. Retail space ispoised to double during the next three years, according to Jones Lang LaSalle Meghraj, to nearly100m sq ft. Citibank reckons the scale of supply, and vacancy rate, will keep a lid on rentals and couldbe further incentive for the government to open the market to foreigners

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