Covid-19: Tyre companies face rising inventories, plan production cuts

The lifting of tyre stock from factories and transporting the same to auto manufacturers came to a grinding halt after the government announced a 21-day nationwide lockdown

As the demand for tyres has almost vanished during the lockdown, inventory kept with tyre manufacturers has risen to one months' worth of production — the highest ever — with producers working on strategies to reduce stockpiling, such as with production cuts.

Stock lifting from factories and transporting the same to auto manufacturers came to a standstill after the government announced a nationwide lockdown, effective March 25. Since then, tyre production continued, but with a minimum capacity of 20-25 per cent, there has been no offtake. Therefore, the entire quantity of production is stockpiled at the factory premises. In fact, tyre manufacturers are facing difficulties with storage space.

“Our tyre inventory has gone up because of the lockdown, so we would be working to reduce it, going forward,” said a senior official at J K Tyre.

 

Other manufacturers are also facing similar difficulties in stockpiling, because of poor lifting.
 

The slump in tyre demand has nullified benefits of a sharp decline in natural rubber prices. Spot rubber prices in the Kochi market polled by the ICEX have reported a decline of 7.1 per cent in the last one month, to trade currently at Rs 123.3 a kg.

“Rubber prices in domestic markets are following the global move. The global lockdown because of Covid-19 has reduced tyre demand from the auto sector. At the same time, rubber prices have slumped — decline in crude oil prices have weakened prices of synthetic rubber and thereupon natural rubber. However, weak demand would continue to keep its prices under pressure,” said Ajay Kedia, managing director, Kedia Commodity.  

Meanwhile, activities in the Kerala market halted because of the lockdown, as farmers are unable to tap rubber because of lack of labour. The government’s decision to allow the rubber/latex industry to produce hand gloves did not make any meaningful impact, as transport services mostly shut down in Kerala.

Industry sources said that auto sales in March 2020 have nosedived. Sales of all 2W/4W and commercial vehicle players fell sharply in the range between 50 and 90 per cent YoY. Q1FY21 is likely to see further decline (38-44 per cent YoY), driven largely by the lockdown, lack of consumer confidence, and a substantial increase in unemployment. 

That trend will likely continue till July 2020.