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Friday, Jan 09, 2004

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Industry & Economy - Tyres

Tyres: A better tread

B. Krishnakumar

THE reduction in peak Customs rate from 25 per cent to 20 per cent and the removal of 4 per cent special additional Customs duty would offer some relief to the automotive tyre industry.

The profitability of tyre producers has been taking a knock in the recent quarters owing to the sharp spurt in input costs. The indirect tax proposal is likely to offer some relief, particularly with regard to the prices of petro-based inputs such as carbon black, nylon tyre cord and synthetic rubber.

Considering that there is significant import content in the raw-material mix, the reduction in peak duty rates would benefit the tyre producers in the form of lower raw material cost. The recent improvements in the business environment along with the reduction in indirect tax rates would have a positive impact on the tyre industry.

Though the reduction in peak Customs rate could make tyre imports relatively cheaper, a flood of imported tyres is unlikely. Such a trend was not evident in earlier occasions and is unlikely to be a major threat in the future as well.

The domestic producers are cost efficient, especially in the case of the popular cross-ply tyres that is the commonly used in the country.

Top companies such as MRF, J. K. Industries, Apollo and Ceat are likely to be major beneficiaries.

The improvement in business prospects for tyre producers would have a positive impact on the carbon black industry. The reduction in peak Customs duty would result in lower landed cost of carbon black feedstock, which in turn would help the carbon black producers.

Though the drop in peak rates might expose the carbon black producers to the threat of cheaper imports, such a trend appears unlikely.

The efficiency and expanded production capacities would help domestic carbon black producers match the landed price of imports.

On balance, the lower cost along with improved offtake from the tyre sector would help the carbon black producers log higher volumes and improved performance. Industry majors Phillips Carbon, Indian Rayon and Cabot India (recently delisted) would be major beneficiaries.

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