Chinese truck tyres cost about 20% cheaper than Indian radials.
The margins of domestic tyre manufacturers are in likely come under pressure as the restrictions pertaining to import of Chinese truck radials have been relaxed recently following demand from original equipment manufacturers (OEMs) who were facing supply shortage in the country.
Tyre manufacturers are already grappling with the rising raw material prices and have recently hiked prices to partially pass it on to the consumers.
The Chinese truck tyres are on an average cheaper by around 20 per cent compared to Indian truck radials.
A trader or importer earlier had to obtain a license for importing tyres, which has now been made open by the Centre following demand from OEMs.
Rajiv Budhiraja, director general, Automotive Tyre Manufacturers Association (ATMA) said, "The license scheme was intended to regulate import and restrict it to actual users, like OEs and large transporters. With the opening up of imports, bulk of the trade would now be through traders".
The total tyre market in the country is around 15 lakh tyres per month and is expected to grow by around 10-11 per cent this fiscal. Nearly, 70 per cent of the net production is of truck radials. In value terms, the overall industry size is around Rs 30,000 crore, of which around Rs 3000 crore comes from exports. The size of the domestic truck tyre industry is close to Rs 18,900 crore considering the net domestic tyre industry size to be around Rs 27000 crore.
"Nearly, 60-70 per cent of the Chinese truck tyres goes into the replacement market which is also the biggest market for the indigenous tyre manufacturers. Around 78 per cent of their production is consumed by the replacement market, 10-12 per cent goes to the OEMs and the remaining for exports," informed Budhiraja. The relaxation of import regulations, hence, would hurt domestic tyre manufacturers dearly.
He feels that even the OEMs have been caught unawares in terms of the rising demand, while a 15 per cent growth was expected last fiscal, there was a demand escalation of around 28 per cent.
Now, however, the domestic tyre industry is in for a huge scaling up of capacity. "The overall capacity of the truck tyre industry will double from 90,000 tyres per month to around 1.8 lakh truck tyres per month within the next six months and will further rise to 2.5 lakh truck tyres per month within a year's time as all major producers including CEAT, Birla Tyres, Apollo Tyres and JK Tyres have chalked out major expansion plans", said A S Mehta, marketing director, JK Tyres, a market leader in the truck tyres segment. OEMs will then reduce dependence on imports and source domestically, he added.
On being asked whether the opening up of Chinese imports would put pressure on domestic truck tyre prices, Mehta said,"There would definitely be some pressure on the prices of the cheaper domestic variety of truck tyres. The premium brands are likely to be relatively immune".
An industry insider who did not want to be identified said that prices could be down by around 5-10 per cent in the wake of cheaper substitutes, or the tyre-makers would hold their plans to raise prices next quarter.
A Delhi based importer-trader of truck tyres R B Rubber Traders said that the Centre’s move could further boost sale of Chinese tyres in the replacement market. “We see a growth in demand for Chinese truck tyres in the replacement market”, the trader added.
With natural rubber prices hovering around Rs 170 a kilogram (kg), major tyremakers like JK Tyres and Apollo Tyres have raised prices in June first week. JK Tyres has raised prices thrice since January, in equal installments of 4 per cent each time. "We have raised our prices by around 12 per cent during this calendar year as rubber prices have almost doubled from Rs 90 per kg at the same time last year to around Rs 169 per kg now," Mehta said. Raw material costs have risen in the range of 20-25 per cent over the last one year including natural rubber and crude based raw material for tyres. Raw material costs account for around 70 per cent of the cost of tyre production. Of this, around 45 per cent is natural rubber and the remaining are crude based products like nylon,carbon black and certain chemicals.
Competition from Chinese tyres might further impact the margin of tyre makers that are already struggling to absorb the rising raw material prices.
