Tyre makers' margins erode on high rubber prices

The net income has plunged almost to ‘nil’ from 5% last year.

Squeezed between soaring raw material prices and stagnant finished product prices, Indian tyre manufacturers are facing a decline in margins.

The net income of tyre companies from operations – known as margins – has plunged to almost“nil” from an average five per cent last year. If the rise in natural rubber prices continues, the margins may move into the negative territory soon, say companies.

“The increase in natural rubber prices has had a huge impact on our margins. This has to be looked into. All tyre companies are impacted. The content of natural rubber in tyres is 40-45 per cent and varies from product to product,” said A S Mehta, director marketing, JK Tyre.

“Everybody was expecting rubber prices to come down from October, but they kept shooting up. It is obvious that margins will come under pressure. The government needs to take an urgent view on availability of natural rubber while revisiting the import duty,” he added.

Natural rubber prices have crossed the Rs 208 per kg mark — more than double the price during the same period last year. On the benchmark Tokyo Commodity Exchange, rubber touched near 30-year high at 378.8 yen a kg ($4,569 a tonne) on Monday before settling at 378 yen.

Meanwhile, tyre manufacturers have refuted claims by their trade body, the Automotive Tyre Manufacturers Association (Atma), alleging price manipulation in natural rubber on Ahmedabad-based National Multi Commodity Exchange (NMCE).

Koshy Varghese, VP, marketing, MRF, said: “There’s a shortage of rubber in the market. Price is a function of demand and supply. We should not allow the situation to aggravate.”

“When a product is in short supply, its price is bound to go up in the futures market. This can be done by speculative players who are responsible for driving the price higher,” he added.

Echoing Vargese’s views, Anant Goenka, deputy managing director, Ceat, said: “Prices were expected to cool but they didn’t. Use of synthetic rubber will be encouraged in a limited quantity. The two are connected. If the price of natural rubber goes up, people shift to synthetics, which pushes up its cost.”

India’s natural rubber production in November declined 5.4 per cent to 88,500 tonnes from 93,500 tonnes in the same month last year due to adverse climate.

NMCE, however, suggested that tyre manufacturers should participate on the exchange platform to hedge risk in raw materials like natural rubber and protect margins.

Lesser carryover inventory, inadequate supply, extended monsoon and adverse climate in most producing countries have kept rubber high globally and no fall in prices is in sight.

The price rise is on the basis of fundamentals. There is global tightness in availability. It is more so in India due to good growth in the tyre sector.

Tyre production in India in the first half of this financial year (April-September) increased 28 per cent while exports rose 18 per cent. Production increased in all tyre segments while growth was negative in export of truck/bus tyres and light commercial vehicle and tractor tyres, according to the latest Atma data.