McGladrey Capital Markets Quarterly Industry Reviews

RSM EquiCo Capital Markets is Renamed McGladrey Capital Markets

noreply@blogger.com (cm) — Mon, 29 Sep 2008 17:43:00 +0000

Global investment bank RSM EquiCo Capital Markets LLC, one of the nation’s most successful merger and acquisition advisory firms, has changed its name to McGladrey Capital Markets LLC (www.mcgladreycm.com).

The firm’s new identity reflects its closer integration with RSM McGladrey, Inc., one of the nation’s largest providers of accounting, tax and business consulting services. Both firms are indirect subsidiaries of H&R Block, Inc. (NYSE: HRB).

Media, Entertainment & Gaming industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Mon, 28 Jul 2008 13:45:00 +0000

Content is Still King

Content vs. distribution, the long-standing debate in the world of media, may have finally anointed a clear winner: content. Years before the advent of cable television, the Internet, satellite radio and the numerous other distribution channels in the market today, companies that controlled distribution were regarded as the “gatekeepers.” Content providers battled over airtime and the gatekeepers chose the victors. As each new distribution channel was introduced, the number of consumer viewing options multiplied, reducing the power of the gatekeepers.

Rather than simply provide access to content, media companies discovered a need to aggregate quality content in order to attract the consumer. Comcast's $51 billion acquisition of AT&T in 2002 provided Chief Executive Brian Roberts with nearly 60 percent of all cable/satellite television subscribers, leading market mavens to speculate the return of the gatekeepers to power. This speculation resulted in a spate of acquisitions as News Corp., Time Warner and other media giants fought to keep pace. But as HBO, ESPN, USA Networks and other powerful cable networks have shown, the experts miscalculated the power of the consumer. With the growing reach of the Internet—through streaming media sites such as Hulu and YouTube, social networking sites including Facebook and MySpace, news aggregators like Digg, and the ubiquitous blogging community—the options available to the consumer have never been greater. Read complete report.

Healthcare industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Mon, 28 Jul 2008 13:42:00 +0000

Healthcare Information Sharing

Advances in information technology have enabled better gathering, processing, management, and distribution of data. Nevertheless, less than one third of all U.S. hospitals and less than 20 percent of physicians' offices have meaningful forms of electronic data handling capability. As a result, IT spending is likely to remain robust for the foreseeable future.

Two areas of particular interest involve interoperability of healthcare systems and patient information management. Interoperability of health systems enables information exchange between hospitals and other facilities in order to improve the quality, efficiency, and effectiveness of treatments. In June, the Certification Commission for Healthcare IT (CCHIT) published its approved criteria for certifying certain electronic-health-record products, and they will begin accepting applications as early as August. Organizations such as CCHIT and the Healthcare Information Technology Standards Panel are committed to the adoption of widely accepted interoperable healthcare IT standards throughout the United States.

Concerning patient information management, Longs Drug Stores Corporation announced a partnership with Google to launch Google Health, a platform for linking Longs' pharmacy clients with doctors and healthcare providers in order to manage their electronic medical records. Separately, Kaiser Permanente has teamed up with Microsoft to launch a pilot program that would allow Kaiser's members to store their personal health information securely online using Microsoft's Health Vault. Read complete report.

Government Services industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 23 Jul 2008 13:33:00 +0000

Key Topic: Beyond the Beltway - Huntsville, Alabama

The release of the Defense Department's 2005 Base Realignment and Closure (BRAC 2005) transformation put Huntsville, Ala. on executive whiteboards throughout the government services and defense community. BRAC 2005 effectively cements Huntsville's position as the center for U.S. missile technology by realigning the Missile Defense Agency and the U.S. Army Space and Missile Defense Command with the Army Aviation and Missile Command and the Aviation & Missile Research, Development and Engineering Center at Redstone Arsenal and NASA Marshall Space Flight Center.

The Missile Defense Agency, part of the Defense Department, facilitates missile defense systems development that integrates multi-service capabilities into a seamless theater-defense system. It is also responsible for guiding the development of a missile defense system capable of defending the United States from foreign missile attack. Space and Missile Defense Command is responsible for developing the Army's missile defense systems and assuring the Army's access to and utilization of space access in the execution of its mission.

Senior leaders from the Beltway and beyond have taken note and many are actively building a presence in northern Alabama. Following is a timeline highlighting the recent migration to Huntsville. Read complete report.

Global Financial Services industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 23 Jul 2008 13:30:00 +0000

Sector Highlights - Specialty Finance
Sovereign Wealth Funds - Controversial Value

Wobble or topple? Which word will come to mind should another $55 billion evaporate out of the U.S. and European financial institution communities? Since the fourth quarter of last year, Sovereign Wealth Funds have poured about $55 billion into U.S. and European financial institutions, to the great benefit of their shareholders and customers. And this number is expected to growth further.

Questioning the steady stream of SWF capital infusions has become the fodder of politicians, lobbyists, protectionists and bloggers, among others. Yet alternative solutions on par with the magnitude of needed capital have yet to surface. With many of our financial institutions taking massive hits due to bad risk management and investments, the foreign capital has enabled balance-sheet strengthening and saved more than a few shareholders and taxpayers from painful results. Using SWFs to redistribute surplus wealth to those in need is a huge benefit to our capital system. Where are the Democrats when you need them? Read complete report.

Food & Beverage industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Mon, 21 Jul 2008 01:51:00 +0000

Consumer Shopping Habits are Changing

A recent survey on food shopping in 2008 indicates that increased fuel and food costs are influencing how consumers shop, cook and dine. So far in 2008, families are eating their main meal at restaurants only 1.2 times per week, down from 1.3 in 2007 and 1.5 in 2006. Although retailers are benefitting as consumers eat at home more often, shoppers are making fewer two trips per week due to higher fuel costs.

Grocery spending has increased by 4.9 percent to a weekly average of $97.80 so far in 2008, up from $93.20 in 2007, exceeding food-at-home inflation of 4.2 percent over the same period. Some 48 percent of consumers claim their grocery-shopping patterns are being impacted by higher prices, up from 41 percent in 2007. In 2008, shoppers are changing their overall behavior: 48 percent are purchasing fewer food items, up from 40 percent in 2007, while 40 percent are purchasing more canned, frozen or boxed food items as opposed to fresh, non-preserved food, up from 30 percent in 2007. Read complete report.

Energy Services industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Mon, 21 Jul 2008 01:49:00 +0000

Valuations Rise Rapidly as Competition for Deal Flow Intensifies

Although overall M&A deal volume declined in the second quarter of 2008 as global credit markets tightened and leverage became sparse, activity in the renewable energy sector remained strong. The industry continued to consolidate as companies sought to expand their energy-generation capacity through strategic acquisitions. The escalating competition for deal flow, particularly among the large, international power companies and specialized renewable energy companies, put upward pressure on valuation multiples. While it is still difficult to determine appropriate values for renewable energy transactions, average valuations increased to $4.2 million perMWof operating capacity. Compared to the cost of recent greenfield developments for approximately half that amount per MW, it appears that buyers are increasingly willing to pay significant premiums for attractive targets. Read complete report.

Engineering, Construction and Building Materials Industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 16 Jul 2008 13:12:00 +0000

Global Infrastructure Growth

Global infrastructure spending is estimated to average $2 trillion annually through 2015, fueled by population growth, urbanization and industrialization. More than half of that spending is forecast to occur in emerging economies, driven by favorable regulatory policies, improved government finances and increased private-sector participation. Developing countries such as China and India have set ambitious infrastructure targets. China is earmarking over $543 billion for infrastructure expenditures from 2006 to 2010. Meanwhile, India is budgeting $494 billion for the next five-years (2008-2012) and $989 billion from 2013 to 2017.

The U.S. infrastructure is “aging and inadequate,” which will drive infrastructure expenditures. Recent commentary by E&C companies regarding infrastructure needs, backlog and order trends bodes well for continued strength in the infrastructure related end-markets. Read complete report.

Chemicals Industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 16 Jul 2008 13:10:00 +0000

Recent Trends

These are extraordinary times for the industry, with major producers announcing 40-45 percent price increases during the past two months in response to skyrocketing raw materials costs. With oil at $135 a barrel, one might expect the chemical industry to be suffering — and it is in specific sectors. Yet the questionwe keep hearing is: “Can I get the product?” Price concerns are much less important.

During the past year, the United States has again become an attractive place to produce chemicals, largely because of the soft dollar. Recently, the nation's appeal has been further enhanced by the rising cost of shipping, which has made Asian and Middle Eastern bulk-chemical suppliers less competitive. Despite the slowdown in the U.S. economy, the domestic market is still significant, and a production base in the United States has become almost mandatory for European producers, most of which have seen significant margin decreases due to the strong euro.

The result: some U.S. plants are gaining new life…and some companies are becoming highly attractive to international buyers. Read complete report.

Basic Industries review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 09 Jul 2008 20:43:00 +0000

Logistics Growth Rates Average Four Times that of GDP

The U.S. Gross Domestic Product growth rate is an accurate leading indicator for the annual growth rate of the third-party logistics (3PL) market. The 3PL market has grown at an average rate of more than four times that of the overall economy since 1998 . The primary growth factors for logistics outsourcing (besides general economic growth) include the desire of 3PL customers to concentrate on core competencies, reduce aggregate logistics costs, and improve supply-chain efficiencies through economies of scale.

These drivers traditionally move in an inverse relationship with the economy and actually increase during economic slowdowns, as many 3PL customers increase cost-cutting measures. Figure 1 (see the full report for image) illustrates the correlation between U.S. 3PL market growth and U.S. economic growth as measured by GDP.

For 2008, forecasted growth for the U.S. 3PL market involves modest growth of 8 percent, from approximately $119-$124 billion in 2007 to an estimated $125-$134 billion for 2008. Figure 2 shows 3PL growth through 2008. Read complete report.

Aerospace & Defense industry review Q2-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 09 Jul 2008 20:40:00 +0000

Key Trends

High Jet Fuel Prices Challenging Financial Health of the Airlines

The current operating environment for the commercial airline industry presents a set of unprecedented challenges that may threaten the viability of even the largest fleet operators. A combination of $143 a barrel oil and a weakening global economy has forced over 20 airlines into bankruptcy this year and caused many others, including Air Canada, Qantas, and US Airways, to reduce capacity. Today's oil prices have reduced the financial effectiveness of capacity cuts, as even full planes are not cash-flow positive at these levels. Drastic measures such as fuel surcharges and baggage fees may not be sufficient to return the airlines to profitability. Operators are struggling to generate a profit as the rise in fuel prices has increased fuel expenditures to between a third and a half of most carriers' operating costs. In the equity market, volatility surrounds the sector as analysts have questioned the ability of industry participants to adapt to high oil prices.

The difficulties facing the airline industry have caused concern over the health of the order book for new commercial aircraft, since the order book is only as healthy as the customer accepting delivery. Over the near term, orders appear secure as the initial deliveries are going to international, regulated airlines that generally are in stronger financial condition. Uncertainty arises when the unregulated, mostly U.S.-based airlines are due to accept deliveries in 2010 and 2011. The effect on the global supply chain is unclear, as the airline industry must face the difficult decision of buying new, more fuel-efficient aircraft or cancelling orders in order to conserve cash. Read complete report.

Technology industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Tue, 29 Apr 2008 14:09:00 +0000

Internet Software

M&A Activity in Gaming Software Industry Heats Up

Premiere Entertainment Productions Inc. acquires online gaming capabilities by purchasing Digiwave Solutions Inc.
Electronic Arts Inc. announces acquisition of Take-Two Interactive Software Inc. for its interactive gaming capabilities
360 Holding AB announces acquisition of Pokerstaker Ltd. for its online poker offerings
SoundBite Communications Inc. acquires Mobile Collect Inc. for its e-gaming software offerings
PEIC Acquisition Corp. announces acquisition of Parlay Entertainment Inc. for its Internet-based gaming and entertainment software

Read complete report.

Rubber & Plastics industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Tue, 29 Apr 2008 14:08:00 +0000

Outlook for Commodity Resins

Commodity resin prices are off to a tumultuous start in 2008, with prices for polyethylene (PE), polypropylene (PP) and PET seeing recent drops and PVC stubbornly holding on to gains. Softer-than-expected demand and slow export business led to declines in PE prices, causing manufacturer margins to increase, which in turn led PE buyers to seek lower prices from their suppliers. The decline in exports has left North American manufacturers pleasantly surprised at how well domestic demand has held up in early 2008. PP and PE (especially HDPE) continue to benefit from the soft value of the U.S. dollar, which has effectively made the U.S. a low-cost supplier of those resins. After some difficult production and consolidation decisions made in 2007, the remaining resin producers are intent on rebuilding margins. By reducing overall capacity, forecasting resin production to better track fluctuating demand should become easier and eventually place pricing power solidly back in the hands of producers. Current expectations are that resin prices will average 5-10 percent higher in 2008 than in 2007. Read complete report.

Recreation & Leisure industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Fri, 25 Apr 2008 13:40:00 +0000

Key Trends

The recent economic slowdown has negatively impacted many industries, including recreation and leisure. U.S. economic growth was nearly flat during the last three months of 2007, according to the U.S. Commerce Dept. Also, consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects deepened worries that the economy has fallen into recession. Several sectors of the $115 billion sports and recreational products industry have been affected by the slowdown in demand, particularly higher priced products like pleasure boats and RVs - not surprising in light of the squeezing of discretionary income. However, several sectors have been bright spots, including those tied to outdoor activities such as golfing and bicycling, as well as health and fitness. The following describes recent news and outlook in these three sectors. Read complete report.

Healthcare industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Thu, 24 Apr 2008 14:34:00 +0000

Healthcare Consumerism on the Rise

Educated healthcare consumers are beginning to realize differences in the performance of healthcare plans and providers. Concurrently, there are a number of useful consumer tools, mostly Internet-based information sources, that are enabling these consumers to become more engaged in their healthcare decisions and purchases. In 2008, this consumerism movement will challenge health plans to develop innovative and affordable insurance products that encourage personal accountability. Consumer directed health plans (CDHPs) have been the standard bearers of this movement. These plans, which typically feature high deductibles and consumer-controlled savings accounts, are designed to increase consumer awareness about healthcare costs and provide incentives for consumers to consider costs when making healthcare decisions. Recent studies by PricewaterhouseCoopers show a lower medical cost trend in these plans, which is expected to result in increased adoption by employers and employees. Additionally, certain tax advantages received by CDHPs have led to an increase in their popularity. Though only 4 percent of the commercially insured population is currently enrolled in CDHPs, the market share of these plans is expected to triple by the end of 2008. Read complete report.

Government Services industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 23 Apr 2008 15:56:00 +0000

Key Topic: The Defense Department's Reset Program

Since the onset of major military operations in Afghanistan and Iraq, in-theater systems and equipment have been deteriorating at rates far exceeding normal peacetime levels. The Army maintains that increased operating tempos and harsh conditions in the theater are causing its equipment to wear out prematurely. In general, the Army's major systems and equipment are operating at rates that exceed sometimes by factors of five or six their average operating rates in peacetime.

In response, the Defense Department has instituted and funded programs specifically to combat the deterioration and loss of these systems and equipment. From 2003 through April 2008, the Army alone will have spent over $55 billion to compensate for deterioration and loss of in-theater systems and equipment as shown above. Furthermore, department-wide spendingmay be as high as $92 billion over the same time period based on Congressional Budget Office estimates. Read complete report.

Global Financial Services industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Tue, 22 Apr 2008 13:49:00 +0000

Data Processing Services
Follow the Money, All the Way to the Bank

Operating under the stress of a highly “transaction-oriented” environment, the global financial services industry (banking, financial and insurance companies) continues to have a significant impact on business process industry growth. Not only are financial services companies aggressive and demanding users of business services; they also are major stakeholders through their ownership positions in seven of the top 10 business service providers, asserting their powerful influence on new products and services, e-commerce settlements and the lucrative financial relationships needed by every business client. Read complete report.

Food & Beverage industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Tue, 22 Apr 2008 13:47:00 +0000

Flavors Influencing Demand

Taste, convenience and health continue to be the primary drivers of food choices. In 2008, growing popularity of ethnic food is expected to drive demand for food flavors. Greek, Lasian (Latin and Asian fusion), Korean, Cuban and Japanese food are expected to become more mainstream. In 2008, “sensory irritants” like peppercorns that stimulate aging Baby Boomers' palates are expected to become increasing popular. Flavors crossing categories will be popular as well, with coffee, pomegranate and wasabi leading the way. Drinkable and bite-sized desserts, and cheese as a dessert are among those predicted to be the next fads. (Source: Packaged Facts, 2008) Read complete report.

Energy Services industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Mon, 21 Apr 2008 13:41:00 +0000

M&A Q1 Review and Outlook - Oilfield Services

Overall M&A deal volume in the oilfield services sector declined in the first quarter of 2008 as the global credit markets tightened up and leverage became sparse. A closer look at the data reveals a bifurcated market, with the so-called “mega-deals” (over $1 billion in transaction value) experiencing a substantial slowdown, while the middle market and especially the emerging middle market (deals under $100 million) are continuing a strong deal pace. In Q1 2008, 54 deals were closed in the sector, compared with 88 during the same period a year ago, a 39 percent decline. Total deal value declined to $6.2 billion in Q1 2008, compared to $12.8 billion in Q1 2007, as smaller deals captured a larger share of deal volume. Average valuation multiples also declined, from 16.1x EV/EBITDA in Q1 2007 to 11.6x EV/EBITDA in Q1 2008, as a result of credit market conditions and smaller average deal sizes. Read complete report.

Engineering, Construction & Building Materials industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Mon, 21 Apr 2008 13:39:00 +0000

2008 Industry Outlook

We are cautiously optimistic about companies that serve the commercial market, which we expect to grow, albeit at a decelerating pace. Meanwhile, we expect infrastructure construction to grow in 2008 due to increased highway funding, with a continuing favorable pricing outlook. E&C companies with improved cash flows will accelerate M&A activity in 2008, particularly within the infrastructure upgrade and build-out, upstream oil and gas, and nuclear decommissioning sectors. The green building movement will continue to be driven by rising energy costs, strained water supplies, and environmental awareness. We expect green-building M&A activity to accelerate in 2008, which will likely lead to higher valuations in this niche segment of the building materials industry. Furthermore, aggregates will continue to be sought after and command aggressive pricing. In conclusion, we believe opportunities exist for international strategic and private equity groups to acquire overleveraged companies at attractive valuations. Read complete report.

Chemicals industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Fri, 18 Apr 2008 14:25:00 +0000

Overview

M&A activity in the chemical industry peaked in 2007, finishing the year with an estimated $82 billion in total transaction value, a 14 percent increase over 2006. This result was expected, as deal volume in the industry has increased dramatically over the past three years. Cross-border transactions are also driving significant deal activity as cash- and resource-rich buyers begin to diversify globally. For example, the two largest deals in 2007, Basell's acquisition of Lyondell and SABIC's acquisition of GE Plastics (which collectively represented over $31 billion in transaction value), were both cross-border transactions. RSM EquiCo is also experiencing this global diversification first hand, as we are receiving more inquiries from strategic buyers in India looking to invest in and increase exposure to North American and European markets. Read complete report.

Basic Industries industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Thu, 10 Apr 2008 14:55:00 +0000

Spotlight on Raw Materials

Fueled primarily by growing demand from China, India and other developing countries, commodities of all types, particularly those used in manufacturing processes, have exhibited dramatic price increases over the past year. The CRB Metals Index, which tracks a basket of raw materials and includes copper, zinc, steel scrap, tin and lead scrap, increased 46 percent in the 13 months ended February 29, 2008, outpacing the aggregate CRB Commodities Index's near 30 percent rise over the same period. The current pricing environment is somewhat disjointed from the underlying fundamental economic supply/demand function. The long-term outlook for raw materials used in basic infrastructure and manufacturing continues to be positive. However, speculative investment capital has poured into commodities, from oil and gold to copper, aluminum and zinc, as noted in the aforementioned CRB Metals Index.

In general, the most likely scenario we see unfolding is for most commodities to moderate in price as sentiment shifts from safe-haven investing and inflation hedging to a global slowdown mentality. While the rest of the world is not likely to follow the road of sluggish growth to the same degree as the United States, reduced U.S. consumption will negatively affect growth in some regions, notably Japan, China and Europe. These tempered short-term expectations are likely to take some of the speculative excess out of the current pricing environment, without changing the long-term secular trend. Read complete report.

Aerospace & Defense industry review Q1-2008; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 09 Apr 2008 14:28:00 +0000

Key Trends: Boeing Loss to Northrop Creates Stir

The $1.5 billion initial U.S. Air Force ASC award to Northrop Grumman for the new KC-45 refueling tanker has created ripple effects on the U.S. supplier base that are being intensely debated. The award, which has the potential to grow to $35 billion, not only puts Northrop in a favorable position on future transport aircraft, but it also has given Airbus an important foothold in the U.S. market, since the winning proposal featured the European designed A330.

Following the decision, both Boeing and politicians on Capitol Hill protested that the award will sacrifice American jobs and opportunities. The validity of that point is debatable, since the new KC-45 will be assembled at manufacturing facilities in Mobile, Ala. by 25,000 American workers. This issue highlights the ongoing trend towards globalization of aerospace and its associated pains.

On one hand, this award, based on a stringent set of technical specifications, will provide U.S. troops with the best possible equipment at the lowest cost to the American taxpayer. On the other, Department of Defense dollars will directly benefit a non-U.S. company. While the overall net effect is uncertain, it is clear the issue of globalization will continue to dominate headlines and directly affect future contract awards. Read complete report.

Technology industry review Q4-2007; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Thu, 07 Feb 2008 15:38:00 +0000

Internet Software

Financial Securities Service Sector Heats Up

Credit Suisse Private Equity announces acquisition of online trading solutions provider Thomson TradeWeb, LLC
Euronext N.V. acquires Atos Euronext Market Solutions for its IT solutions offerings to financial companies
HSBC Trinkaus & Burkhardt AG announces acquisition of securities service provider International Transaction Services GmbH
Pension GHCO announces acquisition of First Capital Group, LLC for its high speed connectivity to theworld's futures markets

Consolidation in Online Travel Software

Priceline.com, Inc. acquires Agoda Company Pte Ltd for its specialized hotel discount booking services
HomeAway, Inc. acquires online vacation rental booking company, Owners Direct Holiday Rentals Limited
Travelguru.comannounces acquisition of Desiya.comfor its online hotel booking services

Read complete report.

Rubber & Plastics industry review Q4-2007; RSM EquiCo Capital Markets

noreply@blogger.com (mk) — Wed, 06 Feb 2008 15:54:00 +0000

Raw Material Price Increases Cause Instability

Due to the Saudi and Dow Taft outages, ethylene glycol (EG) prices have risen 40 percent from Q3 to Q4. The shortage of EG, coupled with historically high energy prices, has led to a subsequent increase in raw material costs for polyethylene terephthalate resin (PET). In response, producers of PET have aimed to raise their contract prices again in December by a consensus of $0.02-0.04/lb. Unfortunately, the pass-through of costs to customers has yet to make headway for profit margins as most producers began to tread into negative territory in late 2007 with no sign of relief expected in 2008. On the rubber side of things, most tire makers are set to increase their prices by 5-7 percent over the next few months. These price hikes are a direct result of the year-over-year increases in natural and synthetic rubber prices. However, in Q4 raw material prices remained relatively flat as the increase in synthetic rubber prices (+5.3 percent) was offset by a decline in natural rubber prices (-3.8 percent) from October to November. Industry consolidation should continue as strategic players aim to achieve sustainable economies of scale and increase market share. Read complete report.