Rubber Prices May Force Production Cuts in India

Natural rubber prices have been the bane of tyre makers in India of late, and on November 12 the New Delhi based Financial Express reported that major tyre manufacturers in India are considering production cuts to minimise on losses arising from prices that have risen above Rs 200 (£2.77) a kilogram.

“We have no option but to scale down production,” said Automotive Tyre Manufacturers Association (ATMA) chairman Neeraj Kanwar said in a letter to Indian finance minister Pranab Mukherjee on November 11. Kanwar, who is also vice-president and joint managing director at Apollo Tyres, urged for a meeting to resolve the rubber crisis. In addition to high prices, Indian manufacturers also have to deal with declining domestic rubber supplies and high duties on imported natural rubber.

A 20 per cent import duty is currently attached to natural rubber, and to-date calls from tyre makers for a 100,000 tonne allowance at a concessional rate of 7.5 per cent have not been heeded. Demands for India’s government to change the import duty from a percentage to a flat rate of Rs 20 per kilogram have also proven fruitless so far. “At current prices, the import duty component alone amounts to around Rs 40 per kilogram, which makes it unviable,” commented ATMA director-general Rajiv Budhraja.

The timing of this ‘rubber crisis’ has been unfortunate. Neeraj Kanwar points out that of late encouraging growth has been seen in domestic tyre demand and the Indian tyre industry is geared up for major expansions and green field projects to meet the demand growth in tyres. Yet Indian manufacturers will struggle to compete against their Chinese counterparts given that duties on imported sheet rubber there are currently 5.2 per cent; the import duty structure in China allows importers to pay 20 per cent or RMB 1600 (£149.50) per tonne, whichever is less.