Macroeconomic and market scenario

The international economy

In 2014, global economic activity recorded a growth of 2.8% (GDP), in line with the previous two years however with a greater contribution from mature countries. GDP growth in Europe, the USA and China offset the higher volatility of emerging countries, in particular South America and Russia.

GROWTH GLOBAL GDP, (ANNUAL CHANGE IN %)

Source: IHS, January 2015

Analysing the dynamics of the different geographical areas, Europe saw a gradual recovery in economic activity (+0.9% GDP growth), particularly in the United Kingdom, Spain and Germany. The trend in the European economy was however affected by the sharp slowdown in the Russian economy, affected by geopolitical tensions and the rapid depreciation of oil prices. Excess production capacity in some areas and weak domestic demand have weighed on price performance: inflation in the Eurozone stood at 0.4% for 2014 and -0.6% in January 2015. In this context, the European Central Bank cut interest rates twice during the year and strengthened its monetary stimulus measures, culminating in the program of government securities purchases announced in January 2015.

Growth in the US economy was more sustained: +2.4% change in GDP over the previous year, accompanied by a reduction in the unemployment rate: 5.6% in December compared to 6.7% in the same month of 2013. The Federal Reserve concluded the program of quantitative easing in the fourth quarter of 2014, and the expectations of a change in monetary policies with the rise in interest rates generated a revaluation of the US dollar in the second half of 2014.

There was a slowdown in the growth of Latin American countries, where the drop in raw material prices decreased the value of export and the high inflation rate penalized domestic demand. The Brazilian GDP grew by only 0.1% in the third quarter of 2014, after two quarters of decline, and indicators confirm the activity is still weak in the fourth quarter. Both Argentina and Venezuela closed the year in recession; Venezuela in particular was strongly impacted by the collapse in oil prices, resulting in greater difficulty for economic operators in finding "strong" currency for importing the industrial goods required for production.

China closed 2014 with a growth of 7.4%, slightly lower than the previous year’s growth of 7.7%, but however in line with the "new normal" of the government, which accepts a slower but more sustainable economic growth.

Exchange rates

The year 2014 was characterized by high volatility in exchange rates, reflecting the aforementioned conflicting international monetary policies. The appreciation of the US dollar against the euro was strong in the second half of 2014, which closed at the euro/dollar exchange rate of 1.21 compared to the average rate of 1.37 in the first half. Overall, the euro/dollar rate reported an average of 1.33 US dollars per euro in 2014, unchanged from 2013. 

EXCHANGE RATE: US DOLLAR PER EURO

Exchange rate: Brazilian Real per USD

Source: European Central Bank, monthly data up to 31 December 2014

Latin American currencies also depreciated, sharply in the fourth quarter. The exchange rate of the Brazilian real against the US dollar, stable in the two middle quarters around 2.2 to 2.3, then depreciated by over 10% in the last quarter to close the year at 2.65.

The trend of the Chinese renminbi was more stable, with an average rate in 2014 of 6.15, in line with the previous year, despite the depreciation in the fourth quarter. The Japanese yen, following the Central Bank’s announcement that it would continue its expansionary monetary policy, continued the depreciation trend which started in late 2012, registering an average rate of 106 yen to the dollar for the year 2014, a drop of 8% compared to the 2013 average.

Automotive Markets

In 2014, the global car market recorded an increase in registrations of 3.5% thanks to the sales performance in China, the US, the UK and Japan, especially of the Premium and Prestige brands (+16%) which represent 10% of the total volume of cars sold in the year. Contributions to this trend came both from the European and North American markets, traditionally characterized by high incidence of high-end vehicles, and from the strong growth in emerging markets; the global appeal of this segment is evidenced by the emergence of China among the leading Premium car markets in the world.

The automotive market recovered in Europe with an increase of 5.7% in registrations over 2013 (ACEA data), after six consecutive years of decline. The growth was mainly driven by the United Kingdom and Spain. The market in NAFTA countries continued the positive trend of recent years also in 2014, increasing registrations by 6% (HIS source). In Latin America the performance of the sector was affected by the slowdown in economic activity which resulted in a drop in registrations in almost all markets. In Brazil, the main market of the region, registrations were down by 6.9%. On the other hand, trends in the automotive market in China were positive: despite the slowdown in the GDP growth rate, both production and registrations of light vehicles increased by about 8%. In Japan, vehicle registrations were up 3% mainly due to sales concentrated in the early months of the year, before the increase in the consumption tax introduced in April.

The global demand for commercial vehicles decreased by about 3.5% in 2014: the positive trend of the NAFTA region (+13%) mitigated the decline of the markets (IHS estimates) in Europe (-8%), Russia (-23%) and Latin America (-16%). In Europe the slowdown was particularly sharp in the second half of the year, after the good results registered in the second half of 2013 and the beginning of 2014 thanks to the introduction of emission regulations (Euro 6). The slowdown in Russia and Latin America is basically a consequence of the slowdown in economic activity in these countries. In China, sales and production of commercial vehicles decreased in 2014 by approximately 6%, after double-digit growth in the previous year.

Tyre Markets

In 2014, sales volumes in the Car market increased by 3% year on year, a slight slowdown compared to 4% of the previous year. The Premium segment (tyres with a rim diameter equal to or higher than 17 inches) continued to grow at a rate at least three times higher than the rest of the market, recording a +10% increase in the year. In 2014, Premium tyres represented about a quarter of the total car tyre market.

As far as the radial segment of the Industrial tyre market is concerned (Truck and Bus), 2014 recorded a growth of 3.0%, a slight slowdown compared to +5% in 2013.

Tyre sales, Consumer Market
(annual change in %)
20102011201220132014
Europe*  Original Equipment 13 3 -9 0 4
Replacement 8 3 -12 0 2
NAFTA Original Equipment 39 10 17 5 5
Replacement 4 -1 -5 -1 3
Latam**  Original Equipment 13 2 0 6 -17
Replacement 11 7 1 9 5
China Original Equipment 31 2 7 17 10
Japan  Original Equipment 20 -13 19 -4 2
Replacement 9 8 -1 4 4

* Including Turkey, excluding Russia. ** Argentina, Brazil and Venezuela.
Note: the data excludes imports except Latin America where the spare parts segment includes imports. Source: Pirelli estimates

  

Tyre sales, Industrial Market
(annual change in %)
2010201120122013 2014
Europe*  Original Equipment 57 32 -8 6 -4
Replacement 18 -1 -17 7 2
NAFTA Original Equipment 30 55 5 -4 16
Replacement 18 3 -11 2 10
Latam**  Original Equipment 47 11 -29 34 -23
Replacement 23 2 -4 10 -3
China  Original Equipment 53 -15 -19 17 -5
Replacement 10 1 -4 3 3
Japan  Original Equipment 37 -2 15 1  4
Replacement 14 7 -4 6 6

* Including Turkey, excluding Russia.
** Argentina, Brazil and Venezuela.
Note: the data excludes imports except Latin America where the spare parts segment includes imports. Source: Pirelli estimates

The performance of the tyre market in 2014 was supported by the gradual recovery in Europe, the acceleration of economic activity in North America and the continued growth in China.

In Latin America the trend of the OE (Original Equipment) tyre market reflects the reduction in the production of vehicles in a difficult macroeconomic context; instead the sales trend of Consumer replacement tyres was positive as a result of the growth and improvement of the fleet mix over the last few years. In Russia, the sales of tyres were affected by the general economic slowdown and the impact of the geopolitical tensions in the area on the economic activity.

Raw Materials

Over the course of 2014, the prices of key raw materials declined, also impacted by the sharp fall in oil prices in the latter months of the year. The price of Brent fluctuated between 105 and 115 dollars a barrel in the first half of 2014 but fell sharply in the fourth quarter, which brought the price down to 63 dollars a barrel in December, a drop of 43% against December 2013. The average of the year 2014 stood at 100 dollars a barrel, down by 8.5% over the previous year. The main factors contributing to this trend are the increase in supply, supported by the production of shale oil in the USA, the weakening of global demand and the appreciation of the US dollar.

Purchase prices of natural rubber continued the decline started after the peaks reached in 2011, to stand at an average of 1,711 US dollars per ton in 2014, a decrease of 32% compared to the average price of 2013. The drop in prices occurred despite the efforts of major manufacturers to limit their exports in an attempt to prop up prices by reducing global supply. The price of butadiene, the main material for producing synthetic rubber, also decreased in 2014, eventually averaging 944 euro per ton, down by 15% compared to 2013.

Prices of raw materials

Brent

Natural rubber TSR20

Butadine

Source: IHS