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Raw Material Costs Register in Price Hikes

Published May 14, 2008

BY MATT WIEBE

SUWANEE, GA—As the price of steel, butyl and carbon black—the three fastest appreciating raw materials—goes up so do prices on everything from inner tubes to tubeless tire linings to drivetrain components.

Tire makers and component suppliers have announced price hikes that should take effect starting this month.

Maxxis, whose tires are made in Taiwan, revised its January pricing on April 15, increasing tire prices by 8 percent and inner tube prices by 12 percent. On CST tires made in China, tire and tube prices are up about 6 percent.

All forms of oil-based synthetic rubber appreciate more than other raw materials. Butyl is the primary ingredient of inner tubes and tubeless tire linings and its price is skyrocketing. It’s up over 100 percent in the past year. Carbon black, an ingredient important to tire treads, also is up substantially.

“We get hit so hard when oil goes up, so much of what makes a tire is oil based. And I don’t entirely know what is happening with the world butyl market, but there is a huge butyl shortage and its price shows it,” said Christopher Warrick, marketing director for Maxxis’ bicycle division. Maxxis is Cheng Shin Rubber’s premium brand.

Chakib Khelil, Opec’s president, warned in April that oil prices could hit $200 a barrel in the near future, suggesting that rubber and other raw material costs would continue to rise.

Meanwhile, Shimano announced two price hikes. The first happened May 1. The second will take place Oct. 1. The May 1 revision updated its 2008 product pricing while the October revision will have the largest impact on model year 2009 bikes arriving early.

This month, pricing of components originating in Malaysia and Singapore go up 5 percent. Costs are up 2 percent for components coming from Japan.

In October components and shoes from China are going up 5 percent, and select components from Malaysia and Singapore are going up an extra 5 percent.

Japanese-sourced cassettes are up an additional 3 percent and Japanese internal gear hubs are up an additional 5 percent. Both products are made with substantial amounts of quickly appreciating steel.

“These are OE price hikes, so adding supplier and retailer margins the impact on retail pricing could be 15 to 20 percent,” said Devin Walton, Shimano’s public relations manager.

“When you see a cost hike like this outside of a model introduction it’s because we have been absorbing costs for a while but they keep climbing. It’s not something any supplier wants to do,” Walton said.

Shimano has released pricing on its new 2009 Saint and SLX groups, and has new Dura-Ace coming this fall with electric or mechanical drivetrain options. Shimano is not talking about Dura-Ace yet, so pricing information is not available. But given the new technology being developed for Dura-Ace, especially the electric drivetrain, pricing will be higher than Dura-Ace 7800 even without factoring in rising material and energy costs.

SRAM also raised its OE pricing 3 percent on parts coming out of Taiwan and 9 percent on parts coming from China. Five percent of the bump in Chinese pricing reflects the lowering of its VAT tax refund on exported products.

The company showed its revised 2009 line at Sea Otter. Next year’s Rival and Force receive lots of Red technology, mostly in revised lever adjustment and shifting actuation. Rival gets a carbon lever as well.

But 2009 Rival is only up 2.4 percent at retail and Force is up a similar amount. Red’s suggested retail price actually drops from $2,142 to $2,095 for 2009. But all the groups squeeze retail margins as OE cost reflects the 3 percent rise on Taiwanese parts.

“There was so much excitement about Red at Sea Otter, but in all the conversations no one commented about price. They just wanted to see the parts. It could be that they see they can get Red technology in the lower-priced Rival and Force groups, but I don’t think the economy was much of an issue to them,” said Michael Zellmann, SRAM’s PR and media manager.

Even though model year 2009 bikes will begin showing up this summer, suppliers will not finalize pricing until the last possible moment, probably late this month and into June.

No one expects 2009 bikes to be priced 20 percent more than the 2008 bikes they replace even though component cost hikes warrant that.

Retailers can expect to see lots of creativity in parts spec’d as product managers try to cut costs where consumers won’t notice like bottom brackets, cassettes, stems and seatposts.

Suppliers are hoping the model year change in the midst of the selling season will lessen the blow of rising prices.

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