In the backdrop of a weakening economy and demand slowdown, the only positive for the indigenous tyre industry has been margin respite on account of falling rubber prices. However, a recent government of India proposal to hike import duty on rubber could adversely affect the competitiveness of Indian tyre manufacturers vis-à-vis imports, warns ICRA.
Slackening pace of economic activity and demand slowdown in the domestic auto industry has had an adverse impact on the domestic tyre industry during the last fiscal (2012-13).
With volumes across most auto original equipment (OE) segments (barring Light Commercial vehicles (LCVs)) declining/ flat and replacement demand continuing to remain muted, the domestic tyre industry is estimated to have recorded a modest 6-7 per cent revenue growth during the 2012-13.
As ICRA points out, “A positive emerging out of the weakness in auto demand globally has been the sharp correction witnessed in input costs of key raw materials for tyre manufacture namely natural rubber (NR), Butadiene and Caprolactum, among others that have supported the margins of tyre manufacturers. After having reached a peak of ‘ 240 per kg in April 2011, rubber prices have fallen to around ‘ 162 per kg during March 2013.”
As domestic tyre manufacturers held on to prices in the replacement markets, industry wide margins expanded by over 3.5 per cent during the nine months ended December 2012. However owing to the pileup of inventory during the fourth quarter of 2012-13, the industry has resorted to discounts and price cuts.
However, the recent government proposal to hike import duty on rubber could impact the competitiveness of the indigenous industry vis-a-vis exports.
The domestic tyre industry continued to witness healthy capacity additions during 2012-13, primarily in the truck and bus radial segment, with around 45 per cent of the proposed 24 million tyre capacities (2013 to 2015) coming on-stream during the year itself.
While the pace of additions has moderated in comparison to past years, the commissioning of such large capacities by both domestic and global tyre manufacturers is likely to create a temporary excess supply scenario over the next couple of years.
Source: Business Standard
