Apollo Tyres in no mood to cut prices

Despite natural rubber prices falling 30%, firms say it is difficult to pass benefit to consumers as other raw materials are still expensive

Though the price of natural rubber (NR) has dropped 30 per cent in the past 12 weeks, the tyre industry is not in a mood to cut prices.

The price of RSS-4 sheet rubber had crossed Rs 240 a kg in April 2011; it is now Rs 172 a kg. Yet, tyre prices remain at a peak.

There were incremental increases in tyre prices during 2011 and in the first quarter of 2012, whenever NR prices rose. The tags were revised on seven occasions during that period, the cumulative rise being 15 to 20 per cent.

The reverse process is not taking place, though NR prices are falling, both abroad and in this country. The Bangkok market on Tuesday quoted Rs 154 a kg. In April 2011, it had quoted Rs 249 a kg.

In April–July, 76,666 tonnes were brought in (about a third of the tyre industry’s consumption of NR) as against 60,461 tonnes in the same period of 2011-12.

Rubber accounts for about 30 per cent of tyre companies’ costs. According to Onkar Kanwar, chairman, Apollo Tyres, though rubber prices are down, those of other raw materials — rubber chemicals, steel tyre cord, carbon black and synthetic rubber — have risen substantially. So, the reduction in cost of rubber has not been enough to reduce the making charges of tyres. “If rubber prices go down to Rs 100 a kg, then we can think of a reduction in the prices,” he told Business Standard.

In the global market, there is stiff competition in the tyre sector, he added. Indian companies have to compete with major global players. There is also a serious shortage in quality rubber at home. As the industry needs more good quality rubber to make radial tyres, imports would go up.

The tyre industry also points to the marked shift in its financial results in 2011-12. Compared to total net profit of Rs 584.6 crore of the leading eight companies put together in 2010-11, there was a total net loss of Rs 39 crore in 2011-12, says the Automotive Tyre Manufacturers Association (Atma). Performance has been better in the first quarter of 2012-13 but isn’t at a comfortable level yet.

N Radhakrishnan, former president, Cochin Rubber Merchants Association, told Business Standard that apart from the substantial rise in prices of other inputs, the industry had fixed tyre prices after taking NR prices at Rs 200 a kg.

Rajiv Budhraja, director-general of Atma, said the rise of the dollar against the rupee had escalated the landed cost of raw materials, other than rubber, to much higher levels than last year. Most such inputs are not produced in India. And, NR prices are still not low compared to the average prices of recent years, he said, while the overall financial position of tyre companies is “not healthy”. Adding: “Maybe there is better performance in a couple of quarters but over a period, it is not safe yet for tyre majors.”