Bicycle-makers ride high on surging oil prices

By Ralph Jennings

TAIPEI (Reuters) - The row of gleaming bicycles being assembled on the factory floor of Giant Manufacturing, one of the world's biggest bicycle-makers, will soon hit streets from Seattle to Sydney, Amsterdam and even Beijing.

Rising petrol prices, growing awareness of environmental issues and the popularity of cycling as a recreation sport has fuelled a surge in demand for bicycles around the world.

Giant, the Taipei-based maker of international bicycle brands such as Boulder, Yukon and Iguana, is reaping the profits. The company, which produced 5.5 million bikes in 2007, is expected to pull in $1 billion in sales this year, up 10 percent, it says.

Giant's story is typical of the global $61 billion bicycle industry, which is enjoying unprecedented growth as cycling becomes a major recreation sport and lifestyle option in many Western countries.

"There is a general renaissance and interest in bikes," said Jack Oortwijn, editor-in-chief of the monthly magazine Bike Europe. "Parts suppliers are struggling to keep up."

China leads the world in the number of bikes produced per year with about 73 million units of a total 100 million annually, according to the Earth Policy Institute, an environmental information network based in the United States.

The rest comes largely from Taiwan, Canada, Russia, Ukraine and the European Union. Taiwan makes about 6 million bikes per year and they sell for an average domestic wholesale price of $222 per unit, according to a local manufacturing association.

Bicycle sales have over the past five years increased by 14.6 percent among European Union nations, which buy 70 percent of the world's bikes, according to Bike Europe. In the United States, sales have increased by almost 9 percent in the same time period.

METAL PRICES HURT MARGINS

But it's not all good news.

Price hikes in metals -- especially steel, aluminum and chrome which are the main metals used in bikes -- have eaten into profits and pushed up prices as manufacturers seek to maintain margins.

The key to greater margins lies with high-end light bikes using carbon frames, made from carbon fiber material, which earn higher margins per unit because they sell on brand cachet as well as quality, offsetting steep raw materials costs.

"If you want to compete, you've got to raise efficiency," said Giant's president Tony Lo.

Giant also manufactures battery powered bikes which are popular in China where the company operates three factories.

Battery-powered bikes are a big hit as China's economic boom puts money in the pockets of even the poorest factory workers who almost immediately upgrade their bikes.