“Since the gap between domestic rubber production and consumption is widening, we do not foresee any significant reduction in prices”, says Mr Rajiv Budhraja, Director-General, Automotive Tyre Manufacturers’ Association. In a chat with Business Line, he also explains how the increase in price of natural rubber and other raw materials have led to a renewed thrust on tyre retreading. Excerpts:

Why has rubber had this unrelenting rise in recent times?

The price rise in natural rubber is linked to several factors. One, the domestic consumption of natural rubber has outpaced its production, leading to a supply crunch. In fact the Indian scenario has mirrored the international scenario as commodity prices have ruled higher worldwide in view of demand-supply gap. Forward trading in natural rubber has been another factor, fuelling speculation. Sometimes the speculation is devoid of any fundamental shift in demand-supply situation. Over the last one and a half years, the natural rubber prices have been more than doubled increasing production cost for the tyre industry to a great extent. However, they have only partially passed on the increase in view of tough competition in the market place. Companies have been resorting to measures like increase in operational efficiencies, better inventory management and reduction in wastage to offset the increase. Besides, they had to absorb the cost-push to some extent leading to a squeeze on their profitability. Industry margins have come down to 3 per cent in 2010-11 against 8 per cent the previous year.

Have the duty reductions on rubber imports helped?

That hasn’t helped much. The import duty was brought down to 7.5 per cent in December 2010 and by the time the licences were issued, it was the middle of February and imports had to be effected by March 31. It took the government over a year to take a decision. But the industry had less than six weeks to organise the imports. Secondly, the international prices that time were very high, and had move higher than domestic. So that relief was too little, too late. Since April this year too, the availability has been very tight. That is why we are continuing to plead for the one-lakh tonnes of duty free imports as almost 20 per cent of the consumption comes from imports.

Given that prices have somewhat reduced between April 2011 and now, what is the outlook?

Since the gap between domestic production and consumption is widening, we do not foresee any significant reduction in prices. Last year also the industry hoped for the softening of natural rubber prices with the onset of peak tapping season in September. However the prices went spiraling up and overshot the international prices. Current softening of prices might provide temporary succor to the industry. However as a sustainable growth enabler, the industry has asked for duty-free import of natural rubber to the extent of domestic deficit.

Is the competition from Chinese tyres a real threat ?

Yes, dumping of cheap Chinese tyres is a threat. There is no let up in import of cheap Chinese tyres despite imposition of anti-dumping duty. Aided by export incentivisation policy of Chinese Government and in view of unfair measures such as under invoicing of imports, cheaply priced Chinese tyres have swarmed Indian market. At times such tyres are priced even below the production cost by Indian companies. Normally there is a price differential of 20-30 per cent between the Chinese and locally manufactured tyres. Chinese tyres account for almost 70 per cent of total import of tyres in the country.

How is the tyre retreading market shaping up?

It is difficult to estimate the size of the retreading market primarily because of a very large segment of this is in the unorganised sector. However, increase in price of natural rubber and other raw materials have led to a renewed thrust on retreading. Other factors which augur positively for retreading in the commercial vehicle segment are curbs on overloading and an improvement in road infrastructure. An increase in operating costs for a commercial vehicle operator by way of fuel and cost of new tyres also provides impetus to retreading. Also, with the organised players getting into re-treading, the overall profile of the retreading segment is likely to change and find greater acceptance.

Where do we stand on tyre exports?

Practically all tyre manufacturers have export revenues, among which CEAT is the biggest. The largest exports would be truck and bus tyres and the markets would be Bangladesh, Pakistan, Africa and the Middle East. Latin America is also a big market. Currently, about 15-18 per cent of total industry turnover comes from exports. But the outlook is very tough; there is slowdown outside, particularly in the commercial space. A lot of excess Chinese capacity is also available. That also puts pressure on exports.

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