Raw Material Risks

Raw Materials: industry is keeping a cautious approach

In 2013 natural rubber, synthetic rubber and petroleum based raw materials (especially chemicals and carbon black) will remain an uncertain factor in the Group’s cost structure, due to the sharp volatility witnessed over the past several years and their impact on the cost of finished products (about 38% of cost of sales).

The slowdown in developed countries during 2012 had a substantially depressing effect on principal commodities, with the exception of oil prices, which were influenced by geopolitical factors.

Taking into consideration the current macroeconomic environment, Pirelli expects a positive impact from raw material (vs 2012) of around 230 million euros (excluding exchange rate effect) mainly due to the downward trend in natural rubber price. Although exchange rate effects erode such gains, there is still a tailwind of around 125mln € (vs 2012).

Contingent price scenarios for the principal commodities purchased by the Group are simulated on the basis of their historic volatility and/or the best information available on the market (e.g. forward prices). On the basis of various scenarios, sales price increases and/or other internal cost efficiency recovery actions have been identified (e.g. use of alternative raw materials, reduction of product weight, improvement of process quality, and reduction of discarded material) as necessary to guarantee the forecast profitability levels.

Last Revised: 17 Mar 2014