The Hindu Business Line : Tyre companies resort to cutting output

Slowdown blues
Ceat has cut production in a few plants and will review the situation for January
MRF to cut production across plants but will not retrench staff
Birla Tyres shuts its Balasore plant in Orissa for a fortnight

Suresh P. Iyengar

Mumbai, Dec. 18 Pushed to the wall by cheap imports from China and tapering demand, tyre manufacturers have decided to cut production to protect their bottomline.

Mr Arnab Banerjee, Vice-President, Ceat Ltd, said, “We have cut production at our plants in last few months and it will be shut for five to six days in December. We will review the situation and decide on our strategy for January.”

Mr Koshy K. Varghese, Executive Vice-President, MRF Ltd, said, “It makes fiscal sense to cut production to avoid building up inventory. We will resort to cut in production across our plants, but there will be no retrenchment of employees”.

MRF has declared a lock out at its Arakonam plant in Tamil Nadu till Friday on account of labour unrest in the factory. The company recently cut production at its plants in Tiruvottiyur and Arakonam.

Birla Tyres, a sister concern of BK Birla flagship Kesoram Industries Ltd, has shut its plant at Balasore in Orissa for a fortnight due to slump in demand.

Under the circumstances it is impossible to continue normal operation of the plant. It is therefore essential that we shut the plant with effect from December 17 in the first instance, said Mr D. Tandon, Senior President, Birla Tyre, in a communication to workmen.

Of the total imports of 14.02 lakh tyres in the first seven months of this fiscal, 11.36 lakh tyres have been shipped from China. On the other hand, export of tyres from India was dwindling in view of overall economic slowdown and protective policies adopted by other countries to safeguard their interests.

For instance, import tariff on tyres in Malaysia and Vietnam was 40 per cent, Indonesia and Thailand was 15 per cent compared with 10 per cent levied in India.

Mr A.S. Mehta, Marketing Director, JK Tyre & Industries, said the original equipment (OE) demand for heavy vehicle tyres dropped 60-70 per cent and for cars it is down 20-25 per cent till November. The OE and replacement market represent two main segments for tyre sales in India.

“Due to the sharp drop in demand we find that our working capital, particularly inventories, and debts have increased and there is a serious liquidity crunch in the market not to mention the credit squeeze from the banking sector,” said another tyre company official.

“All tyre majors and members of ATMA including Apollo, Bridgestone and Goodyear have decided to go for production cuts of varying degree in view of slowing demand,” said Mr Rajiv Budhraja, Director General, Automotive Tyre Manufacturers Association (ATMA).

“The tyre industry is the single largest consumer of natural rubber in the country, accounting for about 58 per cent of total natural rubber consumption. The fall in demand for tyres is getting reflected in low offtake of natural rubber in the country, notwithstanding the prevailing lower prices,” said Dr R.P. Singhania, Chairman, ATMA.