The unprecedented rains in Kerala and the consequent flooding have claimed yet another victim: The tyre industry. With the State accounting for 80 per cent of the country’s natural rubber production, tyre-makers are in a tight spot.
Vehicle sales are in full throttle, driving up their raw material requirement. But tyre companies are having to raise rubber imports to make up for the shortage at a time when the rupee has fallen steeply. Besides, the widening demand-supply gap could push up domestic natural rubber prices in the coming months, affecting their operating margins.
Production loss
According to the Rubber Board, a survey on the loss due to floods is still on. In any case, the production of natural rubber has been on the slide this fiscal. Production in April-July 2018 was 1.72 lakh tonnes, 14.4 per cent lower than in the same period of 2017.
“Our estimate is that August production would not be more than 20,000 tonnes as against 58,000 tonnes in August 2017. In September 2017, production was 61,000 tonnes; this year, it is not likely to be more than 35,000 tonnes,” said Rajiv Budhraja, Director-General, Automotive Tyre Manufacturers Association.
Natural rubber production for 2018-19, estimated at 7.3 lakh tonnes at the beginning of the year, was revised downwards to 7 lakh tonnes in July by the Rubber Board. Now, this figure may move down further.
Big worry
The shortage of its key raw material domestically is a big worry for the tyre industry for it comes at a time when auto sales are on an upswing. So far in this fiscal, automobile sales have shown a healthy double-digit volume growth. Sales of commercial vehicles, whose tyres are more dependent on natural rubber, have grown at a much higher rate than the industry.
“Even if production this year reaches 6-6.5 lakh tonne levels, it will not meet more than 50-60 per cent of the estimated consumption,” says Budhraja.
“Production in Kerala has not been meeting industry requirements in recent years due to issues of lower productivity, perception of prices as being non-remunerative, etc. So there is a shortfall of about 35-40 per cent. This gap will only widen because of the floods,” says Satish Sharma, President, Asia-Pacific, Middle East and Africa, Apollo Tyres.
Although domestic prices are currently at the same levels as last year, the shortage after the floods could push them up in the quarters to come. Already, tyre-makers have been feeling the heat of the rise in crude oil prices on inputs such as synthetic rubber and carbon black.
Also, the sharp fall in the rupee is increasing the landed cost of imports, though global natural rubber prices are ruling 5-20 per cent below India prices.
Secondly, the unexpected shortage is also driving companies to buy from the international spot market where prices tend to be higher than what they may be under planned long-term contracts, says Budhraja. The fact that imports are allowed only via Chennai and the Jawaharlal Nehru Port Trust (Navi Mumbai) does not help either as it increases the freight cost for companies with plants far away.