February 14, 2017 / 10:36 AM / 6 months ago

Sumitomo Rubber says rising raw material prices to hit 2017 earnings

TOKYO, Feb 14 (Reuters) - Sumitomo Rubber Industries Ltd said surging cost of raw materials would likely impact earnings in 2017, as Japan's second-largest tyre maker forecast a more than 30 percent fall in full-year operating profit.

Asia benchmark rubber futures at the Tokyo Commodity Exchange (TOCOM) hit their highest levels in more than five years late last month.

"We expect raw material prices to continue at the current levels through this year, though butadiene prices may come down," Sumitomo Rubber President Ikuji Ikeda told a news conference on Tuesday.

Prices of rubber, which climbed 26 percent in January before paring gains due to the Chinese New Year holiday, and butadiene, which is used to produce synthetic rubber, are expected to cut its operating profit by 55.1 billion yen, the company said.

After factoring in sales growth and cost savings, Sumitomo Rubber forecast 2017 operating profit to fall 32 percent to 50 billion yen ($440.2 million), below a consensus estimate of 71.65 billion yen from 13 analysts polled by Thomson Reuters I/B/E/S.

"It will be our challenge to take speedy measures to reflect soaring prices of raw materials," Ikeda said, implying that the company may need to increase product prices, cut costs and improve productivity.

"Surging prices of raw materials are our biggest concern for this year," he said.

The company, which also owns natural rubber farms in Thailand, wants to increase output to cushion volatile material prices, Ikeda said.

"We do think about expanding our own production of natural rubber in the future to secure good quality rubber at a low cost, and make value-added products using that material, which may help us differentiate from others," he said. "But our own production currently makes up only a few percent of our needs."

For 2016, the world's sixth-biggest tyre maker by sales, reported an 18 percent decline in operating profit to 73.28 billion yen, weighed down by lower product prices and a higher yen against the U.S. dollar.

$1 = 113.5800 yen Reporting by Yuka Obayashi; Editing by Biju Dwarakanath

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