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Development of Raw Material Markets

General Conditions

Various raw materials such as steel, aluminum, copper, precious metals, and plastics are key input materials for a wide range of different electronic, electromechanical and mechanical components. We need these components, in turn, in order to manufacture our products and systems for the automotive industry.

For this reason, developments in the prices of raw materials usually influence Continental’s production costs indirectly, in most cases, via changes in costs at our suppliers. Depending on the contractual arrangement, these cost changes are either passed on to us after a certain amount of time or redefined in upcoming contract negotiations.

In the year under review, the mine closures of various raw materials producers led to a shortage in the supply of most raw materials, which stabilized their prices after the declines of previous years. Some raw materials even saw hefty price rises in the latter part of the year under review. Other raw materials saw a drop in their average price again in 2016 compared to their average price in the previous year.

Carbon steel and stainless steel are input materials for many of the mechanical components such as stamped, turned, and drawn parts and die casting parts integrated by Continental into its products. In the year under review, the significant recovery in global market prices for iron ore and coking coal led to a corresponding cost increase in steel production, which resulted in a noticeable increase in the prices for carbon steel. This was compounded by the introduction of anti-dumping measures in the European Union. Average prices for carbon steel rose in Europe by around 9% year-on-year. By contrast, average prices for stainless steel were relatively stable in 2016 with an increase of around 1%. Although the average price for the important alloying element nickel stabilized in the year under review, it remained 19% below the comparatively high average price for the previous year. This compensated for cost increases of other raw materials for stainless steel.

Aluminum is used by Continental primarily for die casting parts and stamped and bent components, while copper is used in particular for electric motors and mechatronic components. In 2016, the average price of copper quoted for the year decreased by 11% on a U.S. dollar basis and on a euro basis compared to the average price for the previous year. At the end of 2016, however, the quoted price of copper was up 18% on a U.S. dollar basis and 21% on a euro basis compared to the end of the previous year. The average price of aluminum declined by around 4% on a U.S. dollar basis and on a euro basis. By the end of 2016, the price of aluminum had increased compared to the end of 2015 by 12% on a U.S. dollar basis and 16% on a euro basis.

We and our suppliers use precious metals such as gold, silver, platinum and palladium to coat a wide range of components. Comparing the average prices per troy ounce in U.S. dollars in 2016 and 2015, the prices of gold and silver increased by 8% and 9% respectively, while the quoted prices for platinum and palladium decreased by 6% and 11% respectively. The changes on a euro basis were nearly identical.

We and our suppliers require various plastic granulates, known as resins, primarily for manufacturing housing components. The trend of falling prices for these plastic granulates in the previous year persisted during the first half of 2016, before the increased oil price triggered a recovery in prices in the second half of the year. This left an average price decline for the year of around 8% on a U.S. dollar basis and around 7% on a euro basis.

Price developments of selected raw materials – Automotive Group (indexed to January 1, 2012)

Price developments of selected raw materials – Automotive Group (indexed to January 1, 2012)

Continental uses various types of natural rubber and synthetic rubber for the production of tires and industrial rubber products in the Rubber Group. It also uses relatively large quantities of carbon black as a filler material and of steel cord and nylon cord as structural materials. Due to the large quantities and direct purchasing of the raw materials, their price development has a significant influence on the earnings of the Rubber Group divisions, particularly the Tire division.

The price of crude oil – the most important basic building block for synthetic rubber input materials such as butadiene and styrene and also for carbon black and various other chemicals – fell temporarily below U.S. $30 per barrel in January 2016, marking a 13-year low. Over the rest of the first half of 2016, it recovered to a level of around U.S. $50 per barrel. After major oil-exporting countries agreed to reduce production, the price for crude oil rose to U.S. $55 per barrel at the end of 2016. However, the average price declined by around 16% year-on-year on a U.S. dollar basis and on a euro basis.

The recovery in the price of crude oil also led in 2016 to an increase in the price of butadiene, the main input material for synthetic rubber. Against the backdrop of declining supply after plant shut-downs in the previous year, the growing demand caused a price surge at the end of the year under review. At the end of December 2016, the quoted price for butadiene was 216% higher on a U.S. dollar basis than at the end of 2015. On a euro basis, the price rise was 229%. Compared to the previous year, the average price for the year increased by about one quarter on a U.S. dollar basis and on a euro basis.

The crude oil price recovery also caused other input materials for synthetic rubber to become more expensive in 2016. For example, the price of styrene had increased by 33% on a U.S. dollar basis and 38% on a euro basis by the end of the year under review compared to the end of 2015. By contrast, the average price of styrene for the year decreased by nearly 4% on a U.S. dollar basis and 3% on a euro basis in 2016 compared to the average price in the previous year.

The higher synthetic rubber prices and the rising demand for rubber also resulted in a recovery of natural rubber prices in the year under review. From the seven-year low at the start of the year under review, the price of the natural rubber TSR 20 had increased by 64% on a U.S. dollar basis and 70% on a euro basis by the end of 2016. The price of ribbed smoked sheets (RSS) rose even more sharply, nearly doubling with a price increase of 91% on a U.S. dollar basis and 98% on a euro basis by the end of the year under review. By contrast, the average price of TSR 20 for the year remained nearly unchanged from the average price in the previous year on a U.S. dollar basis and on a euro basis in 2016. The average price of ribbed smoked sheets for the year increased by 5% on a U.S. dollar basis and 6% on a euro basis.

All in all, Continental saw sinking cost advantages from the purchase of raw materials over the course of the year due to the mounting price rises for many raw materials.

Price developments of selected raw materials – Rubber Group (indexed to January 1, 2012)

Price developments of selected raw materials – Rubber Group (indexed to January 1, 2012)

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