Margin pressure forces tyre makers to hike prices by up to 5%

Cost of rubber, the key input, has gone up by about 50% year-on-year and 17% in the last 30 days

Tyre companies, both domestic and foreign, have increased prices by 2-5 per cent, attributing the hike to the increase in rubber prices and to margin pressures. 

Industry sources said that rubber prices have gone up by as much as 50 per cent year-on-year and a staggering 17 per cent in the past 30 days alone, forcing manufacturers to increase the prices of tyres. While tyre prices for cars and trucks rose by 2-3 per cent, those for two-wheelers and three-wheelers were 2-5 per cent.

Retailers, however, are not happy about the decision. T Loonchand Chordia, who represent a multinational tyre brand and has been in this business for over seven decades now, says this is not the right time to increase prices as the sales have already come down by 30-40 per cent due to demonetisation. Retailers also did not agree with the reason cited by the manufacturers for the price increase.

While many tyre makers refused to comment on the development, officials from a few companies have confirmed the price increase. Some companies increased prices early this week, while a few more have planned to do it by February 11.

Ceat Ltd has said it hiked price by one per cent in January.

"We are witnessing a significant increase in raw material prices — both natural rubber and crude oil. We are evaluating the future course of action for the remaining two months of the quarter," said Arnab Banerjee, executive director-operations, Ceat.

Another top official from the industry said that rubber prices in January 2016 were around Rs 97 a kg and were increased to Rs 137 a kg in January 2017 and again to Rs 160 per kg. 

Smaller towns and smaller dealers bore the brunt of demonetisation as most of the transactions were in cash. The impact of  demonetisation was also felt more in the passenger car segment than in trucks.

"The increase in raw material prices comes at an inopportune moment, but since it is substantial, we are evaluating whether or not we can raise tyre prices in the coming quarter," said Banerjee.

Chinese impact

Experts said the price rise will further dampen domestic tyre companies, at a time when there is an opportunity to take on Chinese tyres at home. The aggressive growth in Chinese tyres in the Indian replacement market has slowed down post demonetisation, as the business was conducted entirely in cash.

According to industry representatives, Chinese tyres, which saw a 40 per cent jump in the Indian replacement market earlier, had slowed down to around 17 per cent during the period of the note ban. Indian tyre makers will have breathing time till the second quarter, since Chinese tyres may not come into the market till then due to the demonetisation effect.

Tyre makers have been crying hoarse about cheap tyres getting dumped into TBR (Truck Bus Radial) segment. According to industry representatives, Chinese tyres are priced Rs 5,000-6000 lower than local OEMs. The price increase will further widen the gap, benefitting cheaper Chinese tyres, they said.