Cost deflates tyre makers

A rise in rubber prices is a major concern for tyre manufacturers who fear a contraction in margins in the wake of floods in Kerala, which supplies over 80 per cent of the raw material.

By A Staff Reporter in Calcutta
  • Published 8.09.18
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Calcutta: A rise in rubber prices is a major concern for tyre manufacturers who fear a contraction in margins in the wake of floods in Kerala, which supplies over 80 per cent of the raw material.

Data from the Rubber Board of India show the weekly average price of rubber per 100 kg has gone up from Rs 12,692 on June 30, 2018 to Rs 13,442 on September 1.

According to estimates from India Ratings and Research, domestic natural rubber production meets over 50 per cent of the requirement of tyre companies in India.

"Floods in Kerala will disrupt domestic natural rubber supply and hence tyre companies will resort to higher imports to meet the rising demand. Natural rubber imports attract a duty of 25 per cent. Additionally, with a depreciating rupee, imports are likely to be more expensive and thus will hurt margins of tyre companies amid a rise in rubber procurement costs," said the research firm in a report.

The operating profit margins of the tyre industry could shrink by 1.5 per cent to 2 per cent between the second and third quarters because of a higher cost of production, with rubber forming 50 per cent of the total raw material cost, according to the research firm.

The non-tyre rubber product manufacturers are also concerned about prices.

"The flood in Kerala will affect (natural rubber) production by 15 per cent. Natural rubber output in India is 6 lakh tonnes, while our consumption is 10 lakh tonnes," All India Rubber Industries Association president Kamal Kishore Chowdhury said.

The high prices of natural rubber will impact profitability because of rising input costs, said Vikram Makar, senior member of the association and chairman of India Rubber Expo 2019. The expo will be held in January next year in Mumbai.

According to Makar, small and medium enterprises with limited working capital will be affected more.

Imported finished products could take over the market for tubes and tyres for bicycles and rickshaws, conveyor belts and footwear.

Association members said a rationalisation import duty on raw materials could make domestic manufacturing competitive.