Although local rubber prices have fallen 15-20 per cent during the last seven months, the tyre industry is in no mood to reduce prices. During the last one year, companies had raised tyre prices by 20-25 per cent, citing the sharp increase in natural rubber prices, which forms 35 per cent of the total production cost. However, over the last six to seven months, local rubber prices have decreased sharply on account of slow down in demand and rise in imports. Now, local rubber quotes Rs 25 per kg lower compared to global prices. Yet, the industry is reluctant to pass on this benefit to its customers.
There is not much scope for a reduction in tyre prices, said Sathish Sharma, head, India operations, Apollo Tyres. He told Business Standard that though rubber prices had fallen in recent months, the cost escalation due to the sharp rise in raw material prices in the last three years could not be set off fully with this fall. The price of RSS-4 grade rubber had shot up to Rs 221 in January 2011 and Rs 238 in April. On account of that huge rise, tyre companies had increased prices around six times in 2011-12, by a cumulative 20-25 per cent.
Instead of reducing prices, leading tyre companies are opting for other modes to push sales in the light of a serious slowdown in tyre production and sales this financial year. The April-December period was bad for the industry as production in the medium and heavy commercial vehicles segment dropped 22.33 per cent on average, quarter-on-quarter. The setback was serious in the case of demand from the original equipment segment. So, companies started giving discounts of 0.5 to one per cent to dealers in order to boost sales. It is the dealer’s choice whether to pass on this benefit to end customers.
The move clearly indicated that companies were not ready to announce any rate cuts.
Industry sources told Business Standard that companies had already initiated giving discounts to dealers in the two-wheeler and passenger car segments. And, this might soon be expanded to the bus/truck tyres, too.
Satish said rupee depreciation during the last 12 months had also badly hurt the industry, as it caused a sharp increase in the cost of imported inputs, such as synthetic rubber. The cost of production increased sharply in the last two years, and the industry suffered due to the economic slowdown and drop in demand. So, the recent fall in rubber prices alone is not enough for reducing tyre prices, he contended.