The Hindu Business Line : High rubber prices may hit MRF

The dual impact of unusually high natural rubber prices and crude oil prices may leave dents on the balance sheet of MRF Ltd in the current quarter. The situation is expected to be similar in the rest of the domestic tyre industry.

"Natural rubber prices are on a historic high and is increasing almost on a daily basis. The situation has gone to such a pass that we are managing business almost on a daily basis without any time to draw any long term strategy or to what extent our margins are affected," a company official said.

Margins hit

He, however, made it clear that the impending situation has affected the margins severely. "In the last two weeks, prices have gone up by over Rs 10 per kg and is now ruling over Rs 100 per kg. This is a new phenomenon and is bound to impact the profitability during the quarter."

Interestingly, enough MRF buys rubber from the spot market and does not hedge the risks through futures trading. "We tested our hands in futures a few times, but is yet to make a serious entry in the same," the official said.

On whether such rise in input costs would be passed on to the customer through another hike in tyre prices, the official said that though theoretically feasible, repeated increase in prices in last three months has limited the scope of such options.

"We have increased our prices at least three times in last few months. The last increase was effected barely two weeks back. Any further rise could be difficult to effect," he said.

Govt intervention

Referring to a recent demand placed by the Automotive Tyre Manufacturers Association (ATMA) to put embargo on rubber exports to ease supply situation, sources urged for immediate government intervention to prevent further damage to the tyre industry.

When contacted, the ATMA Director-General, Mr D, Ravindran, said that five year back when rubber prices hit a low government had gone out of the way to ensure payment of a minimum price to farmers and prevented imports by imposing both tariff and non-tariff barriers.

"Rubber prices are now almost 100 per cent higher than what farmers expected. This time, we expect the Government to react in our favour", he said.