Outlook remains bleak due to drop in demand after rate hikes.
Despite an over 32 per cent fall in prices of natural rubber in the last two months, margin-hit domestic tyre manufacturers are unlikely to slash prices of their products.
The price of natural rubber fell below the Rs 100-mark on Tuesday to close at Rs 95 a kg. This is the first time that the price has fallen below the century-mark this year after rising to a peak of Rs 140 a kg in August. The fall in the price is attributed to a decline in crude oil prices and a slide in international rates of latex.
According to reports, leading rubber traders expect a further slide in the natural rubber price due to the ongoing peak production season and because of subdued buying by industrial users.
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Some of the leading domestic tyre-makers, including MRF Tyres, Ceat Tyres, Apollo Tyres and JK Tyres, have witnessed a squeeze on their margins following the recent rise in inflation, which led to an upsurge in prices of most of the ingredients used in making tyres.
Paras Chowdhary, managing director, Ceat, said, “We are going to witness the plight of the tyre industry in the second-quarter results, which has been heavily impacted by high inflation rates. It will be difficult to talk about passing on the benefit to customers now due to the margin fall. General prices (of natural rubber), which used to be Rs 60-70 a kg, peaked to more than Rs 130. Price reduction is still some time away.”
Prices of all key inputs, like synthetic rubber, nylon, crude oil derivatives, steel cords, among others, have not seen any dip. On the contrary, nylon and cord prices have surged, claim tyre manufacturers.
Koshy Varghese, vice-president (marketing), MRF, said, “We will have to wait and watch as to how prices shape up and depending on the cost structure, we will take a call. Although prices of natural rubber have fallen of late, prices of other materials, like crude oil derivatives, have not come down (despite a drop in global crude oil prices). The volatility is so high and also the fact that the stock was bought at higher prices, it will be difficult to comment on the price reduction.”
The financial outlook for the tyre industry, as quoted by analysts, remains bleak due to a drop in demand following price hikes by companies, which have already raised prices twice in this calendar year so far. In addition, analysts predict that there may be no respite in prices of other commodities, which will further put pressure on them.
Despite hiking prices of tyres, the companies, including the RPG Group-controlled Ceat and Chennai-based MRF, had recorded losses in the first quarter of this financial year.
MRF, the country’s largest tyre-maker, recorded a dip in profit by 25 per cent at Rs 31.8 crore in the first quarter of FY09 compared with Rs 42.5 crore in the same quarter last year.
The Automotive Tyre Manufacturers’ Association (ATMA), the country’s apex tyre body, has demanded duty-free imports of up to 100,000 tonnes of natural rubber and a correction in the inverted duty structure on natural rubber vis-a-vis tyre. The step is expected to ease pressure on high costs.
