“The tyre Industry has passed through an extremely difficult phase of continuous and significant increase in the price of natural rubber and other key raw materials. Since raw materials account for approximately 70 per cent of industry turnover, the input cost pressure has resulted in severe erosion of net margins. We keenly look forward to the budget for addressing specific concerns of automotive tyre industry,” Mr Neeraj Kanwar, Chairman of the Automotive Tyre Manufacturers Association (ATMA), said.
In a pre-Budget presentation made to the Ministry of Finance, ATMA said that the automotive tyre industry has asked for duty free import of one lakh tonnes (lt) natural rubber to bridge the gap between domestic production and consumption. While Rubber Board has estimated a shortfall of 70,725 tonnes during the current financial year, the industry has put the figure at one lt, as the industry has shown signs of revival.
The continuous increase in rubber prices till second quarter of current financial year has severely dented competitiveness and profitability of the industry, ATMA said. The tyre industry's net profit as a percentage of net sales came down from 8.84 per cent in Q2 of 2009-10 to 3.23 per cent and -0.07 per cent in Q2 of 2010-11 and Q2 of 2011-12 respectively.
Limited availability
Natural rubber accounts for 45 per cent of the total raw material cost for the tyre industry. Despite the recent softening of rubber prices, average price in current financial year is still 10-12 per cent higher than average prices in the previous financial years, ATMA pointed out.
“Despite peak rubber production season falling between October and February and favourable weather conditions, the domestic availability of rubber is a key concern for the industry. With new capacity creation in the tyre industry and limited growth in rubber area under cultivation, availability situation is feared to worsen in the foreseeable future,” said Mr Kanwar.
The rubber production and consumption had been in sync with each other in India.
However, since 2007-08, domestic rubber consumption has outstripped production in India. India has also become the second largest consumer of rubber in the world while it still ranks fourth in production.
According to Mr Kanwar, the tyre industry has put in process an investment of over Rs 12,000 crore.
All large tyre companies have made substantial investments for new projects and expansions primarily in radial truck and passenger car tyres. The radial tyre investments have multiple benefits in terms of fuel saving, longer life and efficient utilisation of scarce raw materials. However, the industry needs an enabling policy framework from the government for these investments to be meaningful.
To increase competitiveness of the industry, ATMA has also asked for waiver of customs duty on those raw materials that have no domestic production.
These include butyl rubber, SBR (tyre grade), EPDM and polyester tyre cord. The existing customs duty on these raw materials is 5, 10, 10 and 5 per cent respectively.