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The domestic tyre industry is upset at the burgeoning burdens cast on them due to the massive inroads made by products from China.
The industry is already under pressure due to the ever-escalating raw material prices and input costs — including of prices of natural rubber in the indigenous markets that bear little relation to international prices.
Industry sources told Business Line here that with substantial investments — amounting to $1,696 million (ongoing and in the recent past) — made by indigenous tyre companies in expansion and greenfield projects, the scenario appears “quite dismal” if the disabilities of the industry are not addressed by the authorities.
After a year of salutary recovery in 2009, following the global slowdown, the domestic tyre industry saw a period of high growth last year. But the portents now seem ‘depressing' in the light of continuing inflation, repeated bout of interest rate hikes, coupled with money and fuel emerging expensive. All there have dented the consumers' confidence.
Lower Demand
Citing data from the Society of Indian Automobile Manufacturers, the sources said that the demand projections for various categories such as commercial vehicles, passenger cars and three-wheelers have all been revised downwards from 14-16 per cent, 16-18 per cent and 11 per cent to 12-14 per cent, 10-12 per cent and 8-10 per cent respectively.
There is a “distinct slowdown” in the truck and bus tyre segments and offtake during August (the latest available), they said, mainly due to low replacement demand triggered by above-normal rains in most parts, even as the industry is hopeful that in the subsequent two months the trend would be reversed.
Import data from DGCI&S, they said, show that out of 17,87,000 tyres imported during 2010-11 (based on annualised trend noticeable during April-December 2010), 68 per cent rolled in from China, indicating the major inroads Chinese tyres had made into the domestic market. This has hit the viability of the domestic tyre companies.
‘sustained onslaught'
The situation would get further aggravated as the Customs, Excise and Service Tax Appellate Tribunal last month set aside the anti-dumping duty on radial truck and bus tyres. The industry “apprehends sustained onslaught of imports from China” this year.
The industry foresees financial straits on the back of the mounting problems with its net profit already falling from Rs 175.06 crore in the first quarter of 2010-11 to Rs 70.09 crore in the corresponding quarter of the current fiscal. Net profit as a percentage of sales plummeted to 0.88 per cent in the first quarter of the current fiscal from 3.05 per cent in the comparable quarter of 2010-11, the sources said. They pointed out that tyre demand from original equipment manufacturers in two categories — truck and bus, and passenger car — is nearly flat during the current fiscal and is unlikely to show any improvement in the foreseeable future.
The sources noted that the input cost pressures are unrelenting, affecting the bottomline rather adversely with September quarter threatening to be further tepid.
Rubber cost
The sources pointed out that the prices of natural rubber in the country — at Rs 215 a kg — are higher than global prices at Rs 209 a kg. “This is against the normal trend since we are in peak production season and demand is also not at peak levels due to the slowdown in the automobile sector,” said a source.
Asked about this anomaly, the Director General of the Automotive Tyre Manufacturers' Association, Mr Rajiv Budhraja, said the “industry has already represented this to the Rubber Board to take up the serious concerns of natural rubber (NR) consuming interests with policymakers on top priority”.
He said the Board should also get a detailed study on current situation and the scenario of NR consuming industry in India vis-à-vis China with the study covering policy milieu, competitiveness, regulatory framework and SWOT analysis, so that the tyre companies could be assured of cost calculations not going awry.
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