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Priyanka Vyas

New Delhi, Sept. 20 Domestic tyre makers are considering a shift in their raw material sourcing base as they prepare to negotiate the October-December contract.

This is mainly due to the depreciation of the rupee against the dollar and the steep increase of raw material prices in the last few months, which has led companies to scout for alternative low-cost markets.

“If the exchange rate persists at the current levels, we may have to consider increasing our sourcing base from Europe and the US to other low-cost countries like China, South Korea, Vietnam,” said Mr Kaushik Roy, Head, Corporate Purchase, Apollo Tyres.

Mr Roy said the prevailing exchange rate may trigger the company to shift its currency to euro instead of dollar. He, however, said even if the purchasing continued to be dollar denominated, it could still accrue the company a cost advantage of around 5-10 per cent on raw material it purchased due to a combination of local factors, including availability of supply, freight cost amongst others.

Apollo procures 50 per cent of its raw material requirement, which mainly constitutes natural rubber, from the domestic market and the remaining 50 per cent consisting of petroleum-based products from overseas market.

“We will have to wait for the next few days and keep an eye on the currency movement and commodity prices before we take any decision, as globally even though crude prices have softened, petroleum-based products are not showing any signs of lower prices,” said Mr Koshy Verghese, Executive Vice-President, MRF.

Industry players estimate that the increase in raw material prices hit the tyre companies by 30-40 per cent during January-August this year.

“The industry has been affected by almost 40 per cent in the last few months. At this rate, companies will be lured to hunt for low cost sourcing base even if there is a marginal cost advantage,” said an official of a multinational tyre company who declined to be quoted.

More Stories on : Tyres | Forex | Petroleum

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