NEW YORK (AP) -- Shares of Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co. rose Tuesday as investors bet falling natural rubber prices will push up the tire makers' earnings later this year.
THE SPARK: Rubber contracts traded on the Tokyo Commodities Exchange are down more than 14 percent from prices at the end of April, as demand for rubber wanes in the sluggish global economy.
THE BIG PICTURE: Deutsche Bank analyst Rod Lache in a note to investors earlier this month noted the drop in rubber prices since Goodyear reported its first-quarter earnings on April 27. Lache also said that the price of butadiene, a key component of synthetic rubber, has fallen 13 percent since then. Natural rubber is about 40 percent of tire raw material costs, Lache said. Most tires are a combination of natural and synthetic rubber.
THE ANALYSIS: If prices continue to fall, Goodyear's earnings should benefit in the third and fourth quarter, Lache said. The company is expected to release second-quarter results in late July. Every 1 percent drop in raw material costs should raise Goodyear's 2012 earnings per share by 26 cents, Lache wrote. He warned though that falling tire sales in Europe could hurt Goodyear's future earnings.
SHARE ACTION: Goodyear shares rose 65 cents, or 6 percent, to $11.57 in afternoon trading. The stock has ranged from $8.53 to $18.25 in the past 52 weeks. Cooper Tire rose 46 cents, or 2.8 percent, to $17.16.