INTERVIEW-Yokohama Rubber may delay China expansion

TOKYO (Reuters) - Yokohama Rubber Co 5101.T may delay a planned output expansion in China by a few months, the president of Japan's third-largest tyre maker said, as it braces for a further slowdown in demand and potential supply glut.

In an interview with Reuters, Tadanobu Nagumo also warned that losses on stocks and currencies would slice into its net profit in the first half and said he would consider cutting supply contracts with automakers to boost profit margins.

Yokohama, whose competitors include Bridgestone Corp 5108.T and Goodyear Tire & Rubber GT.N, is projecting a sharp fall in profit this business year, hit by weakness in the U.S. auto market and the high cost of rubber and other raw materials.

The company had been planning to ramp up production next month at a factory in Hangzhou, China. That expansion could get pushed back by as much as four months amid worries about oversupply as the the global auto market slows, Nagumo said.

“The auto market looks set to plateau, defying prior expectations for growth of 3-4 percent a year,” Nagumo said. “Tyre makers have been boosting output. Inventories are swelling and there is a risk that prices will collapse.”

Yokohama trails Bridgestone and Sumitomo Rubber 5110.T in Japan and ranks as the world's seventh-largest tyre maker, also behind Michelin MICP.PA, Goodyear, Germany's Continental CONG.DE, and Italy's Pirelli & C PECI.MI.

Yokohama supplies all of Japan's top automakers as well as several foreign car companies including Porsche PSHG_p.DE and Mercedes-Benz. But such contracts typically yield far lower margins than replacement tyres.

Nagumo said that while it needs to maintain relationships with car makers because of the sharing of technological and manufacturing know-how, it may look to end some of those ties and keep only the more profitable ones.

Such a move would fit into Nagumo’s efforts to get his staff to focus more on profitability and less on blindly chasing market share, a typical strategy of Japanese companies in the past.

“Up until now there was a tendency to put a priority on sales and market share in the belief that it would translate into profits in the future. But in this day and age there is no way to go about business without a clear focus on profit,” Nagumo said.

Nagumo warned that Yokohama could fall short of its pre-tax recurring and net profit forecasts for the first half ended last month due to valuations losses triggered by a late surge in the yen and the recent slide in share prices.

Yokohama has forecast recurring profit to come in at 4.0 billion yen ($38.42 million) for the April-September first half, down 63 percent, and net profit at 2.0 billion yen, down 85 percent.

But it will likely hit its forecast for operating profit because it does not include losses on foreign exchange and securities. On an operating level, it has estimated profit to fall 55 percent to 5.5 billion yen.

And at present it has no plans to change its full-year forecasts for operating profit to slide by about one-fifth to 26 billion yen. It would make any changes to its forecast when it announces first-half results on Nov. 12, Nagumo said.

Reporting by Nathan Layne; Editing by Michael Watson