Tyre makers set to up tags

It looks like the new year will see another round of price hikes in the domestic tyre industry. Members of the All India Tyre Manufacturers' Association (ATMA) have almost decided on a 1.5-2 per cent increase in tyre prices effective January 2005.

ATMA members include JK Tyres, Apollo Tyres, Ceat and MRF. The January price lists of these companies are likely to reflect the increased prices.

Increasing rubber prices, which have hit the industry hard in the last one and a half years, doesn't seem to be the industry's biggest problem anymore. The latest round of price increase is a direct result of the spiralling prices of nylon fibre. Nylon fibres constitute 15-20 per cent of the total input cost in tyres.

Rising prices of petroleum and crude, which are used extensively in the manufacture of tyres, has added to the woes of the industry.

"The cost of inputs has gone up nearly 11 per cent in the last one year whereas the price of tyres has not increased more than 3-5 per cent despite three rounds of price increases. This leaves a big gap between costs and returns," said an industry source.

Industry observers pointed out that though most tyre companies would like to push up prices by at least 5-7 per cent at one go, competitive pressures are keeping the prices down.

This cost-return mismatch has led to declining profitability that has pushed several tyre companies into the red in the first six months of the year. Declining sales in the top four companies in the first half of the year hasn't helped matters either.