Tyre makers to lose edge on natural rubber import restrictions

Imported natural rubber makes up 52% of the country's overall consumption of the commodity

Tyre manufacturers are set to lose competitiveness in the global market amid fears of a spurt in prices locally due to the import restrictions on raw material imposed by the government.

The Directorate General of Foreign Trade (DGFT), in a recent notification, said the facility for import of natural rubber (NR) under advance authorisations issued or revalidated on or after January 21, will not be available until March 31. A similar notification a day earlier allowed import of NR of all varieties only through the ports of Chennai and Nhava Sheva (Jawaharlal Nehru Port).

Restrictions on NR imports — the crucial raw material that accounts for up to 52 per cent of the country’s overall consumption — is likely to raise its prices resulting in a proportionate increase in the cost of production of tyre companies. Since Indian exporters have been facing huge competition from countries such as China and Vietnam, further escalation in the production cost would push India out of the export market.

“The decision to restrict NR imports through the ports of only Nhava Sheva and Chennai, and put a ban on duty-free import till the end of this fiscal will be a double blow for the tyre industry,” said Gaurav Kumar, chief financial officer, Apollo Tyres Ltd.

Kumar said the ban on duty-free import would have a higher impact (negative) on the company as Apollo Tyres sells its products across the world. “We would not like to stop our exports to countries where we have a ready customer base,” he said.

The decision assumes significance, especially in the wake of a sharp decline in tyre exports in the first half of the current financial year due to cheaper raw material in overseas markets compared with India.

“NR prices will rise by Rs 5 a kg at least as transportation cost would rise from ports to distant factories. This will see India losing its competitiveness in global markets,” said Rajiv Budhraja, secretary general, Automotive Tyre Manufacturers Association (ATMA).

According to ATMA,  India’s total medium and heavy commercial vehicle tyre exports declined nine per cent to 9,68,061 units in the April-September 2015 period as compared with 10,63,938 units in the corresponding period a year earlier. Passenger car tyres too nosedived 22 per cent to 10,81,841 units in the first half of the current financial year as against 13,95,921 units in the same period last year.

Further, faced with high cost of production, around 40 per cent units engaged in making rubber products have shut shops. Import restrictions would escalate the situation further.

“Tyre exports, which have grown at a CAGR of 21 per cent in the last 10 years have petered out during the current fiscal. The tyre industry has put in adequate capacities to meet the foreseen demand. The auto industry is looking up and the government’s Make-in India initiative is also a big plus. However, the growth environment in the case of tyres is vitiated in view of no-holds barred import of cheaper tyres," said Raghupati Singhania, chairman and managing director, JK Tyre.

According to him, truck and bus radials stood among the fastest growing categories in the tyre industry but imports have come to account for more than 30 per cent of the replacement market impacting domestic production.

Meanwhile, prices of the benchmark rubber RSS-4 declined 8.25 per cent in January following global trend.

As against 1.2 million tonnes of annual consumption, India’s NR production stands at 575,000 tonnes. Thus, India has no option but to import NR.

Import restrictions on NR is set to defy the “Make in India” logic of the Prime Minister and this would escalate import of tyres from China and Vietnam, they said.