KOCHI: Rubber prices have softened in the last four months but tyre makers are not considering a cut in tyre prices because they are yet to recover from a surge in prices of raw materials last year. Natural rubber prices have crashed by almost 20% from October last year.
Prices have fallen below Rs 160 this month and moving in the narrow range of Rs 156-157 per kg. This could perhaps be the worst crash in the recent times. The last time prices dropped below Rs 160 was in May 2010. The plunge in prices benefitted tyre manufacturers the most with major tyre companies reporting good results for the quarter ending December 2012. But they are not ready to pass it on to customers basically for two reasons. First, they are still to recover the rise in input costs early last year. Second, demand for tyres continues to be subdued forcing companies to cut production.
“While raw material prices have softened, they have not reached the level where we would need to correct tyre prices. We are yet to recover from the impact that we had taken due to the abnormal increase in raw material prices early last year,” said Satish Sharma, chief of India operations, Apollo Tyres.
Companies have been juggling their product mix to ensure profitability. According to Satish Sharma, while there has been a fall in original equipment sales, the demand for Apollo’s commercial vehicle tyres in the replacement market continues to be strong. Sales of higher value products like truck and bus radials are high. The decrease in commercial vehicle production has affected tyre companies. “While vehicle production has been slashed by 40-50% in certain cases, tyre output has been cut by 15-20% to tide over the sluggish demand,” said Swaranjit Singh, director of materials for JK Tyres. Moreover, prices of raw materials used in synthetic rubber such as butadiene and caprolactam have started rising. The ratio of natural rubber to synthetic one is 70:30 in tyres.
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Tyre companies speculate low sales will continue into the next fiscal. While the passenger vehicle segment may rebound soon, the revival of the commercial vehicle sector will depend on budgetary policies and other factors like bank interest rates. Companies are keeping a low inventory of 15 days and looking to increase exports to step up revenues.
Source: India Times
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