Rise in rubber prices dents tyre cos' margins

KOLKATA: With natural rubber prices northbound, margins of tyre companies have come under pressure, notwithstanding two price hikes earlier this year. Now, tyre makers may be compelled to raise prices further by 20% if the government does not allow duty-free import of natural rubber. Towards this, they’ve sought Prime Minister Manmohan Singh’s intervention.

Tyre companies are not in a position to import natural rubber, despite comparatively low international prices, due to the prevailing anomaly of inverted duty structure — customs duty on natural rubber import is 20% whereas finished product (tyres) can be imported at 8.6% tariff under the Asia Pacific Trade agreement. Automotive tyre manufacturers’ association (ATMA) wants the government to allow duty free import of at least 2 lakh tonnes of natural rubber on priority basis.

Talking to ET, Apollo Tyres managing director Neeraj Kanwar said: “The emerging scenario of natural rubber is a matter of concern for domestic tyre companies, and, in turn, for the entire road transport sector, including vehicle makers, and the entire transporation chain which moves passengers and goods across the country.

Production schedules and financials of tyre companies are being seriously affected due to less availability of natural rubber and price-related concerns. This has forced us to seek PM’s intervention on the issue.” As far as tyre makers go, there’s scarcely any good news on the natural rubber production front.

According to G Mohana Chandran, joint director (S&P), Rubber Board, the production in FY11 is projected at 8.93 lakh tonnes whereas the industry’s requirement will be 9.78 lakh tonnes. This shortage in supply is likely to put pressure on prices. In fact, rubber prices have surged to Rs 160/kg in April from Rs 110/ kg in November 2009.
AS Mehta, director (marketing) of JK Tyres, said margins are already under pressure.

“We have started sending feelers to the market that there may be a price hike. However, it will be done slowly and gradually. Otherwise, the transport sector will come under tremendous pressure, which is not desirable. We have to see that market can digest the price increase over a period of time. After all, natural rubber constitutes 40% of our input cost.”

Vaishali Jajoo, a senior analyst with Angel Broking, felt price hike is imminent. She said surging demand, higher utilisation level and pricing discipline have enabled tyre companies to pass on the input cost inflation, which will continue.


“Rubber constitutes about 50% of the total raw material cost of a tyre company. Rubber prices have shot up from roughly about Rs 100/kg to Rs 160/kg within a short span of 3-4 months, primarily because of speculation and hoarding. We are, therefore, left with little options.

We can either seek government intervention to allow duty free import of raw rubber to take care of the anamoly of inverted duty structure, or get their permission to increase tyre prices by a sizeable percentage,” said Deepak Tandon, director, Kesoram Industries. Incidentally, Birla Tyres is a division of Kesoram Industries.