Cheaper Rubber Doesn’t Equal Cheaper Tyres – Indian Manufacturers

Despite the prices for natural rubber in India dropping more than 32 per cent in the last two months, tyre manufacturers in this country appear reluctant to follow suit with their own prices. The price of natural rubber fell below the Rs 100 ( ) a kilogram mark on October 7, the first time it has done so this year after rising to a high of Rs 140 ( ) per kilogram in August. The fall in the price is attributed to a decline in crude oil prices and a slide in international rates for latex. Further decreases in the price of natural rubber are also expected in India, the result of peak production season supply and diminished purchasing from industrial users.

However some of India’s leading domestic tyre manufacturers have reported ever-thinner profit margins following recent raw materials price rises, and thus look set to enjoy the extra breathing space afforded by the cheaper natural rubber. “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,” Ceat managing director Paras Chowdhary was quoted in the Business Standard newspaper “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 kilogram, peaked to more than Rs 130. Price reduction is still some time away.”

Other raw material prices, including those for synthetic rubber, have not declined along with those for natural rubber. “We will have to wait and watch as to how prices shape up and depending on the cost structure, we will take a call,” commented Koshy Varghese, vice-president (marketing) at MRF. “Although prices of natural rubber have fallen of late, prices of other materials, like crude oil derivatives, have not come down. 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 that followed manufacturers’ price increases – which have already taken place twice in this calendar year. Furthermore, analysts predict that the prices of other commodities will continue to rise.