Tyre dealers demand price cuts as rubber prices drop

Tyre dealers demand price cuts as rubber prices drop
August 21, 2012




OEMs facing pressure on margins as costs continue to go up

As the tyre OEMs observe wait-and-watch mode due to continuing pressures, tyre dealers’ federation has demanded cut in prices of tyres on the back of fall in prices of natural rubber. While the federation seeks 18-20 per cent reduction in prices, rupee depreciation and high prices of imported crude derivates are reported to be limiting the scope of looking at price reduction for tyre OEMs.

“Now the natural rubber price is hovering at about Rs 174 per kg as against Rs 240 per kg in November 2010. Similarly, the prices of other petro-based raw materials are prevailing at the average rates of year 2008. Hence, there is a case for all the manufacturers to roll back the tyre prices in a pro-rata manner. During 2010-11, tyre prices across the board increased by 18-20 per cent and now the raw material prices pro-rata have come down steeply. However, domestic tyre majors are in no mood to pass on the benefit of lower cost of raw material to consumers. Reduction of tyre prices will result in lower road transport cost and in turn help tame inflation,” said S P Singh, convenor, All India Tyre Dealers’ Federation (AITDF) said.

“Tyre prices have not witnessed any reduction in the last quarter despite steady decline in crude and rubber prices. However, with rupee depreciating against dollar, prices of imported crude derivatives continue to be high. This coupled with the demand slowdown in the automotive industry has led tyre manufacturers to remain on a wait-and-watch mode,” Subrata Ray, senior vice-president corporate ratings, Icra told Financial Chronicle.

Meanwhile, OEMs have indicated that their costs continue to go up and are facing pressures on margins. “Average cost of raw materials in Q4FY12 was Rs 154 per kg, while in Q1FY13, it went up to Rs 159 per kg, registering a four per cent rise. Natural rubber, which started with Rs 100 per kg in FY10, went up to the level of Rs 245 per kg in FY12 and in Q1 of this financial year it was about Rs 193 per kg. Sequentially, synthetic rubber has gone up seven per cent and carbon black has also gone up 11 per cent in Q1. In July this year, raw material costs went up further,” pointed out tyre firms.

“Moreover, the increase in production of radial tyres in India resulted in manufacturers importing some better varieties of rubber. With the inverted duty structure and the fact that we are net importers, the depreciating rupee has also impacted us negatively,” they added.

However AITDF has stated that a five per cent reduction in natural rubber price would result in a strong double-digit rise in domestic Ebitda and there is a strong case for reduction in prices of tyres.

Icra’s Ray pointed out that during Q1FY13, the operating margins of some tyre companies witnessed improvement (YoY), largely supported by favourable rubber prices. Although natural rubber prices have been on a falling trend over the past eight to nine weeks, crude prices has started trending upwards again in the current quarter. This limits the tyre manufacturers’ ability to reduce tyre prices in proportion to the falling rubber prices. Also, in spite of some improvement in operating margin, the industry-wide profitability (RoCE) remains constrained by large investments underway, further limiting ability to lower prices.

Meanwhile, AITDF has sought government intervention for reduction of prices by 18-20 per cent. “This will save the hapless tyre dealers and road transporters. The domestic tyre industry is taking undue advantage by posting arbitrary and indiscriminate tyre prices due to delay in passing of final orders of cartelisation from Competition Commission of India,” it alleged.





India: Widening production-supply gap sees rubber imports increase
August 21, 2012




Production – Consumption mismatch is continuing in the natural rubber (NR) market and this in turn increases import to the country. According to the latest provisional estimates of the Rubber Board, production dropped 0.5 per cent in April – July period while consumption edged up 1.8 per cent.

During the period 238,700 tones were produced as against 240,000 tones in the same period of last financial year. While the cumulative figure of consumption is 330,250 tones as against 324,425 tones. Production of NR for the month of July, increased 2.6 per cent to 66,000 tones compared to 64,300 tones during July 2011. Consumption in July increased marginally at 0.6 per cent to 83,000 tones compared to 82,500 tones in the same month of last year.

It is significant to note that the supply – demand gap is widening in the domestic trade of rubber as in April- July period there was an overall shortage of 91,550 tones. In July alone the shortage was 17,000 tones. So the market is desperately in need of more rubber and now this being made up with import from South East Asian region.

The Board data said that 76,666 tones were imported during April -July period as against 60,461 tones that clearly indicates the shortage of rubber in the Indian market.

Onkar Kanwar, chairman, Apollo Tyres said: “There is serious shortage for natural rubber due to the slow pace in re-plantation and due to slow pace in the increase in acerage in fresh rubber plantations. Re-plantation is the urgent need of the day, otherwise industry has to depend more on imports.”

Companies like Apollo is now looking at taking over plantations in countries like Indonesia and Thailand on lease basis in order to carry on with their production, he added.

According to experts there was a marked increase in the demand for rubber during last decade thanks to capacity expansion and Greenfield plants of major tyre companies. But NR production is almost static, giving chance only for incremental increase. It is likely that India would have serious problems on the rubber front as the country require 1.5 million tones by 2015-16, while the production is likely to increase to a range of 1.1 million – 1.2 million tones, they added.

According to rubber board sources, India is having a comfortable stock and there will not be a serious shortage in the near future. The board now estimates a stock of 216,000 tones. So they discard the possibility of a crisis on the supply front. But industry sources said that the market is not having such a huge stock and the salable stock would not be over 100,000 tones which is sufficient just for one month. So the market will be on a deep crisis unless, there is serious effort to increase production.

Because of the lower price tags in the global market, the rubber based industries, especially the tyre sector, opts for imports.

The better quality of imported rubber also adds value to the imports, imported rubber is more suitable for the manufacture of radial tyres, said Satish Sharma, Chief, India Operations, Apollo Tyres. During the year 2011-12 India imported 205,050 tones as against 188,387 tones in 2010-11. As per the current pace, import is likely to cross 250,000 tones at the end of March, 2013.






Spot rubber slips on buyer resistance
August 21, 2012




KOTTAYAM, AUG. 21:

Rubber market showed a mixed trendon Tuesday. In spot, prices slipped on buyer resistance and the overall sentiments were still bearish. Leading grades failed to sustain at higher levels as there was no follow up buying from major consuming industries.

Sheet rubber weakened to Rs 170 (171) a kg both at Kottayam and Kochi, according to traders and the Rubber Board. In futures, the September series closed at Rs 168.70 (169.57), October at Rs 167.50 (168.16), November at Rs 167 (166.99) and December at Rs 167.50 (167.62) a kg on the National Multi Commodity Exchange.

RSS 3 (spot) dropped to Rs 154.77 (155.05) a kg at Bangkok. The August futures improved to ¥213.5 (Rs 149.15) from ¥212 a kg during the day session and then to ¥215 (Rs 150.19) in the night session on the Tokyo Commodity Exchange.

Spot rates were (Rs/kg): RSS-4: 170 (171); RSS-5: 160 (163); ungraded: 153 (155); ISNR 20: 150 (150) and latex 60 per cent: 113 (113).







Rubber growers demand help on falling rubber prices
August 21, 2012




SONGKHLA, Aug 20 – Thailand’s rubber growers network from 14 southern provinces converged on Songkhla provincial hall on Monday afternoon to press the government for help to shore up falling natural rubber prices.

Police were deployed to ensure law and order around the provincial hall while the growers gathered to demand government intervention on falling rubber prices.

Growers said they have asked for government help many times since January but until now there has been no progress.

They said the raw rubber sheet price has fallen to Bt70 per kilogramme, and they wanted to see the price stay at Bt120 per kilogramme.

The network used a truck with loud speakers as their makeshift stage to attack government measures to resolve the price problem.

They planned to submit a letter to Prime Minister Yingluck Shinawatra asking her to issue meaningful actions to help the growers and remove those who have caused the problem.

Meanwhile, in Ranong, some 100 rubber growers gathered at the Office of the Rubber Replanting Aid Fund (ORRAF) to demand its urgent coordination with agencies concerned to deal with the falling rubber price problem.

The group threatened to carry their protest to Bangkok to demand the government shore up the rubber price to at least Bt120 per kilogramme.