UPDATE 2-Michelin hikes tyre prices as raw materials rise


(Adds broker's comment, car sector, Bridgestone, Continental)

By Marcel Michelson

PARIS, Feb 22 (Reuters) - French tyremaker Michelin kicked off a fresh round of price rises in Europe on Friday, passing on a spike in raw materials such as natural rubber, synthetic rubber, steel and oil.

The increases, to take effect between March 15 and July 1, will hit both consumers and businesses, likely adding to price inflation and possibly slowing economic growth.

The European Central Bank, which keeps a close eye on price developments, is due to discuss interest rates on March 6.

The European Commission said on Thursday that euro zone economic growth was expected to slow to 1.8 percent this year from 2.7 percent in 2007, while price inflation would remain above the 2.0 percent ECB target at 2.6 percent.

Rubber prices are up due to disappointing harvests and insatiable demand from emerging economies such as China. Other products such as grain and milk are also up and the world's largest food group, Nestle , on Thursday said it would continue to raise prices to sustain profit growth.

ArcelorMittal on Thursday announced an increase in the price of its flat carbon steel products because raw material prices had reached "unprecedented" levels.

A barrel of Brent oil trades just below $100, platinum is at record highs but car parts maker Valeo said recently that other non-ferrous metal prices were stabilising.

Michelin, which vies with Japan's Bridgestone for the title of the world's biggest tyre group, said the price for tyres for passenger cars and vans would rise 3.5 percent.


In Britain and the states of the former Soviet Union, the rise would be between 6 and 7 percent as their currencies weakened against the dollar.

"We do this regularly, sometimes in the United States, sometimes on other markets. It is part of our policy to onpass the higher raw material prices," spokeswoman Fabienne de Brebison said.

Truck tyre prices will rise 3.9 percent in continental Europe and by 8.7 percent in Britain while tyres for agricultural equipment will rise by between 2 and 5 percent in continental Europe and between 6 and 9 percent in Britain.

Michelin shares were 1.5 percent lower at 60.89 euros at 0947 GMT, adding to a 21 percent decline so far this year as analysts fear the higher input and slower economic growth will erode the family-controlled group's profit margin to below its 2010 targets despite a drastic cost cut plan.

"Normally a rise in prices is a reason to support the share price," said Francois Maury, an analyst at brokerage Oddo.

"There was a hike in the U.S., in Japan so we were waiting for the next rise in Europe and here it is," he added.

Michelin said last week, when it reported in-line 2007 results, that it expected a negative impact of 200 million euros in 2008 from higher raw material costs.

Bridgestone earlier this week said it expected a 22 percent decline in its operating income this year due to higher raw materials prices.

Smaller German rival Continental , which announced new costs savings and slightly expectation-beating results on Thursday, was down 1.28 percent to 67.63 euros in profit-taking after a gain on the previous day.

The Dow Jones Automotive Stoxx inxdes was down 1.95 percent at 0942 GMT, after a 15 percent decline so far this year. (Editing by Jason Neely/David Cowell)



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