 "Weaker Yuan to take toll on Indian auto components, tyre players")
China’s decision of devaluing its currency has sent Indian manufacturers of auto components and tyres in a tizzy. While China-built products, which command a lion’s share of the imported content, were already the cheapest in the world, the devaluation will make them even more attractive than before.
Nearly one-fourth of India’s auto components and half of tyre needs are met by China alone, as per data supplied by rating and research agency ICRA.
For instance, the April-June quarter for Mumbai-based tyre maker Ceat was challenging because of a substantial increase in competition from Chinese companies. While the supply to the original equipment manufacturers (OEM) is largely catered to by domestic tyre producers China has a major share of the after-sales market.
Anant Goenka, managing director, Ceat, said, “Exports were and will remain challenging because of huge price game by China. Prices of Chinese tyres are extremely low in the market. Currency is one factor that is very favourable to them at the moment.”
Since mid-June, the Chinese yuan has depreciated 3.3 per cent against the dollar, whereas the Indian rupee has fallen 3.18 per cent against the greenback. The worry is that the yuan is estimated to be overvalued and is expected to depreciate further.
Nearly one-fourth of India’s auto components and half of tyre needs are met by China alone, as per data supplied by rating and research agency ICRA.
For instance, the April-June quarter for Mumbai-based tyre maker Ceat was challenging because of a substantial increase in competition from Chinese companies. While the supply to the original equipment manufacturers (OEM) is largely catered to by domestic tyre producers China has a major share of the after-sales market.
Anant Goenka, managing director, Ceat, said, “Exports were and will remain challenging because of huge price game by China. Prices of Chinese tyres are extremely low in the market. Currency is one factor that is very favourable to them at the moment.”
Since mid-June, the Chinese yuan has depreciated 3.3 per cent against the dollar, whereas the Indian rupee has fallen 3.18 per cent against the greenback. The worry is that the yuan is estimated to be overvalued and is expected to depreciate further.
Raghupati Singhania, chairman and managing director, JK Tyre, said, “The menace of dumping of Chinese tyres is continuing unabated and urgent steps are required to impose anti-dumping duty to ensure a level playing field in the market place.”
During the past year, import of Chinese tyres into the Indian replacement market has increased 56 per cent and by a further 58 per cent during the June quarter of 2015-16. Imported Chinese tyres are used in the domestic after-market (replacement) space by the price-sensitive medium and heavy commercial vehicle (M&HCV) and passenger vehicle fleet operators; and two-wheeler (including cycles) consumers.
“While the sunset of an anti-dumping duty (ADD) on Chinese M&HCV bias tyres in February-2015 benefited Chinese tyres, the recent yuan devaluation has exacerbated the price differential between Indian-made and Chinese landed tyres,” the ICRA report highlighted.
China also accounts for 23 per cent of the total auto component imports to India and this share has consistently increased over the past three years, whereas exports to China have remained stagnant. India imported $3.17 billion (Rs 20,300 crore) of auto components last year, reporting a near three-fold jump compared with $1.13 billion (Rs 7,200 crore) posted in 2009-10.
Considering cheaper and local raw material availability (against imported raw material for India), lower financing cost and economies of scale, imports from China are priced-on an average 20-25 per cent cheaper than Indian components, posing a serious threat to domestic auto ancillaries.
Ramesh Suri, chairman, Subros and president ACMA, said, "It is a matter of great concern that China has devalued its currency. Their products are very cheap especially in the after-market and this is going to put pressure on India auto component manufacturers. Raw material is going to become expensive because of the rupee slide."
While there is a genuine concern over cheaper Chinese products eroding the market of Indian manufacturers over time, many of such components are also imitation of the original. This has forced authorities in India to launch awareness drives besides the regular raids on such spurious parts.
The devaluation of the Chinese yuan versus the US dollar has sent shivers across the world, affecting commodities, stock prices as well as majority of currencies. Beginning today, this is the first story of a three-part series which analyses its potential impact on India’s key industries.