The Hindu Business Line : `User units may close down if high rubber prices persist'

Chennai April 18 Industries that use rubber as their key raw material face a prospect of having to close down because of the high rubber prices, feels Mr K.M. Mammen, Chairman and Managing Director, MRF Ltd.

Mr Mammen told Business Line on Wednesday that current rubber prices — around Rs 87 a kg — were too high. "I am a small plantation owner myself and I call tell you that there is enough profits to be made even at Rs 35 a kg," he said.

Mr Mammen said that to make matters worse, the import duty on rubber was 20 per cent — an `exception rate' far higher than the national peak rate of 10 per cent. On the other hand, tyres could be imported paying just an 8 per cent duty, he said.

He added that rubber planters consciously kept the prices at a level slightly lower than the duty-paid imported rubber. This, they did by hoarding quantities of rubber — Mr Mammen estimates that as much as one lakh tonnes is lying with the planters. There are about 10 lakh rubber planters in Kerala, who wield a lot of political clout. As a result, the user industries are suffering.

Mr Mammen said that the impact of imports of tyres from China was beginning to be felt by the domestic tyre industry. "They (Chinese) somehow sell tyres at a price that is lower than the cost of our raw materials," he said.

He wants the Government to correct the inverted duty structure, or at least bring the duty to not more than the peak rate of 10 per cent.

The company that Mr Mammen heads, MRF Ltd, achieved a 22 per cent turnover in 2005-06 (ended September 2006), despite high rubber prices all through last year.

Asked how MRF did not suffer any injury because of high rubber prices, Mr Mammen said that the company was able to import about 15 per cent of its requirement of 10,000 tonnes, under advance licences got against its exports. (Exporters are given the licence to import their raw material up to a specified value duty-free.) MRF's exports fetched Rs 502 crore against Rs 426 crore in the previous year.

Mr Mammen noted that the tyre industry was working on a wafer-thin margin — less than one per cent. MRF achieved a turnover of Rs 3,751 crore on which it made a net profit of Rs 43.50 crore. It earned Rs 7.30 crore selling power from its windmills, excluding which the margin works out to less than one per cent.