A hike in prices of natural rubber in the global market is taking a toll on the profit margins of several rubber products manufacturers, thereby forcing them to hike prices of their products A rise in prices of natural rubber in the global market, coupled with high import duty has drawn serious concerns among industry players with end-user industries urging the Government of India (GoI) for duty-free import of 2 lakh tonnes of rubber. They have also asked GoI to ban rubber exports and hike import duty for finished goods.
The appeal has been jointly made by Automotive Tyre Manufacturers’ Association (ATMA), All India Rubber Industries Association (AIRIA) and Indian Cycle and Rickshaw Tyres Manufacturers’ Association (ICRTMA). These industries have argued that with hike in prices of natural rubber it has become difficult for rubber users to maintain healthy profit margins.
It is to be noted that earlier in March ATMA had sought GoI’s intervention to soften rubber prices and even held a meeting with Prime Minister Dr Manmohan Singh in this regard. But as the meeting failed to produce any solution, the situation has turned even murkier.
 Tyre prices to increase
The auto sector is almost certain to bear the burnt of price rise as tyre manufacturers have declared that they may hike prices of their products by 25%. If one goes through the data of the Rubber Board, there has been a significant rise in average monthly prices of natural rubber since January 2010. Several leading tyre manufacturers in the country such as Ceat, JK Tyres etc have already declared a price hike starting from May 1, 2010.
In this context, Ashwin Modi, managing partner of Ashoka Tyres, a mid-sized tyre dealer in Hyderabad, says, “With a surge in demand for vehicles over the last few months, the demand for tyres have increased significantly. But there has been a shortfall in production of natural rubber in the country, forcing tyre manufacturers to import rubber. High import duty, coupled with rise in prices of natural rubber in the international market have left manufacturers with no choice but increase prices of their products, thereby passing some burden on consumers.”
According to AIRIA officials, while rubber consumption is expected to increase by 20% in 2010-11, production of the same is expected to increase only by 5-6%. Data released by AIRIA shows that in 2009, India ranked second, next to China, in terms of consumption of natural rubber. If the situation does not improve, then cycle and rickshaw tyre makers will be forced to increase prices of their products by 20%.
Expansion plans postponed
According to Francis Xavier, business manager of General Tyres, a mid-sized tyre dealer in Bengaluru, “Thin profit margins have resulted in limited cash flows, which have impeded expansion plans of tyre manufacturers in the country to increase production capacity. GoI must take immediate steps to boost production of natural rubber in the country.”
Not only tyre manufacturers but many small-scale rubber users are also finding it difficult to sustain their business in the existing scenario as well as recover their operational costs. According to AIRIA, most of them are almost on the verge of closure as they are suffering huge losses.
Arup Choudhury |
