Indian Tyre Shortage Non-Existent, say Tyre Makers

An article printed by India’s DNA indicates that the country’s alleged tyre shortage is actually non-existent. In introducing the topic, DNA comments that while vehicle manufacturers such as Tata Motors and Ashok Leyland have blamed domestic market tyre shortages for their increased reliance upon tyres imported from China, the tyre makers themselves see the situation differently – DNA states that officials from Apollo Tyres, JK Tyres and Ceat all say there is no tyre shortage in India whatsoever. Instead, the issue centres on the vehicle manufacturers’ unwillingness to pay more for domestically produced tyres than they would for those imported from China.

During the first two months of this year, total OEM monthly offtake amounted to some 230,000 tyres. Restrictions on imported tyres were relaxed on May 28, and vehicle manufacturers can now freely import Chinese tyres. These products are, commented JK Tyres marketing director A S Mehta, between 10 and 25 per cent cheaper than their Indian produced counterparts. “Around 10-15% of the country’s tyre consumption will be met by Chinese tyres due to this,” he said. This price difference between Chinese and Indian tyres stems from rising natural rubber costs, explained Rajiv Budhraja, director general of the Automotive Tyre Manufacturers’ Association (ATMA).

This creates a problem. Satish Sharma, chief of India operations at Apollo Tyres, said that tyre makers have had to increase prices by 15-20 per cent because of these rising raw material prices, but OEMs are willing to pay only 5-6 per cent of that price increase. “The price at which OEMs expect us to supply the truck and bus radials, which anyway come under a premium category, does not even cover the costs. We are even supplying bias tyres to OEMs at a loss,” he said.

Yet despite these original equipment market complications, India’s tyre manufactures are continuing to increase capacity. JK Tyres is investing Rs 9.6  billion (£133.8 million) to raise capacity at its Chennai facility, adding 2.5 million pcr and 400,000 tbr tyres by the 2012 financial year, lifting total capacity to 12.6 million tyres.  Apollo Tyres plans to add 100 tonnes a day capacity at its Chennai facility in the 2011 financial year, and a further 100 tonnes a day the year after. MRF will add tbr capacity at its Trichy plant up to 1.05 million units. It plans to also invest in a car and two-wheeler tyre capacity at its facility in Medak, Andhra Pradesh. Ceat is investing Rs 5 billion (£69.7 million) to establish a 90 tonne per day unit at Halol, Gujarat. The plant, anticipated to enter operation in October, will manufacture radial tyres for trucks, passenger cars and light commercial vehicles. Another 55 tonnes a day capacity will be added in the 2012 financial year through a further Rs 2 billion (£27.9 million) investment.
 
The question is, with less expensive Chinese tyres entering the Indian market in ever greater numbers, how will domestic manufacturers remain competitive? Will they be prepared to lower prices? Representatives from all the Indian tyre makers state they will not reduce prices and will continue to maintain margins through export and replacement market demand.