Tyre prices set to increase again in Q2 as raw material costs soar

Tyre manufacturers are grappling with unprecedented raw material costs as natural rubber prices touched a 13-year high in June 2024.

This surge has prompted leading companies like CEAT and JK Tyres to increase prices in an effort to offset the rising costs.

Industry experts predict that raw material prices will rise by another 5-6 per cent in the next quarter, although there is hope for stabilisation or even a softening by the third quarter.

Further, industry insiders feel that the current upward trend is likely to persist for the next few months. This could lead to further price adjustments in the tyre market.

Kumar Subbiah, chief financial officer (CFO) of CEAT revealed in order to mitigate costs, it plans to hike prices for certain tyres in the international and replacement market. The company is also expanding presence in the international market.

The company is going to introduce truck and bus radial tyres in the international replacement market in the upcoming quarters, focusing on distributor appointments and tyre exports.

“Progress has been made in securing approvals within the OPM segment, necessitating a scaling up of operations in the current and subsequent quarters. This is to offset increasing prices,” stated Subbiah.

JK Tyres, on the other hand, is adopting a two-pronged strategy.

While acknowledging the upward pressure on raw material costs, the company emphasises on product mix optimisation and operational efficiencies to mitigate the impact on margins. 

Despite the recent decline in rubber prices from their June peak, it has implemented price hikes to cope with the earlier surge.

“The average raw material prices have increased by 3-4 per cent on a quarter-on-quarter (Q-o-Q) basis. The company has managed to pass on around 2 per cent of this increase to consumers,” stated Sanjeev Aggarwal, CFO of JK Tyre.

The price increase by the company is for the domestic market.

Domestic tyre volume growth is expected to be 4-6 per cent in FY25, down from an estimated 6-8 per cent in FY24, according to credit rating agency ICRA.

The replacement market, which contributes to over two-thirds of industry volumes, is expected to remain stable, driven by healthy demand across segments.

“Demand from original equipment manufacturers (OEMs) in certain consumer segments like passenger vehicles and two-wheelers is expected to remain stable, while the commercial vehicle segment may see a decline. Tyre exports are likely to remain sluggish amid a slower recovery in end-user markets,” stated Nithya Debbadi, assistant vice-president and sector head - corporate ratings, ICRA.

Key components like natural rubber, synthetic rubber, carbon black and caprolactam have seen prices climb sharply since January 2024.

Global natural rubber prices have jumped over 30 per cent in just seven months, reaching approximately Rs 215-220 per kg.

It is primarily driven by supply shortages caused by adverse weather conditions in Southeast Asia.

“India, heavily reliant on imported natural rubber, has also experienced significant price increases, with domestic natural rubber trading around Rs 214-216 per kg. The combined impact of elevated natural rubber and crude oil prices is expected to erode tyre industry profit margins by 200-300 bps in FY25,” Debbadi further added.

Anurag Singh, managing director (MD) at Primus Partners, highlighted that tyres are composed of about 50 per cent rubber, both natural and synthetic.

The recent increase in natural rubber prices, driven by reduced availability and high shipping costs, has significantly impacted tyre prices.

Despite a decline in global car demand, the tyre industry has seen steady demand. Singh anticipates that as rubber prices stabilise, tyre prices may decrease.

He noted that competitive market dynamics would prevent companies from maintaining high profit margins.

Manufacturers are keenly watching the market for any signs of stabilisation in raw material prices.