“Most industry players hiked tyre prices by 2-5% on June 9 and we have just announced hiked our prices. Our truck tyre prices are now up by 2%, and by 3-4% for LCVs and tractors. However, rubber and crude prices are playing havoc, so the tyre industry is looking at a second round of price rise, in the next few weeks,” JK Tyres and Industries Ltd’s marketing director, AS Mehta, said. He admitted that bottom lines of tyre manufacturers during the April-June quarter are expected to be hit.

“EBIDTA margins are usually 10% of net sales and we expect that this sharp rise in input prices will have a 2% impact on these margins,” he commented.

While accepting that global rubber prices have been rising, Mr Mehta said Indian rubber prices have risen far more sharply, at 30-40% in the past four months. The domestic rubber production and consumption are roughly equal, around 8.5 lakh tonnes per annum.

However, growers are exporting the raw material, which is forcing domestic tyre manufacturers to import the raw material, paying a 20% duty. While the exporters get some price benefits and a government subsidy, it is Chinese tyre manufacturers, to who the subsidised rubber is being exported, who reap the benefit, since they export tyres to India with a duty of 8.6%.

“In effect, the Indian government is subsidising the Chinese tyre industry, which is exporting tyres to India at 8.6% import duty while domestic tyre manufacturers are importing raw material paying a duty of 20%. We have been demanding that the import duty on raw material, in this case rubber, should be lower than on the finished product,” Mr Mehta said.

While the industry has been successful in enforcing anti-dumping duty on bias truck tyres from China, the case for imposing similar duties on radial truck tyres of Chinese origin is still pending.

“There has been a huge increase in the import of Chinese tyres in India. About three years ago, India ranked was in the 9th or 10th spot among countries importing tyres from China. Today, we are at third position. The domestic after market comprises 7 lakh tyres per month, amounting to a significant Rs. 700 crore, of which Chinese manufacturers have gained a 10-12% market share. A leading OEM did try using cheaper Chinese tyres but found their sales were affected so they have discontinued fitting them,” Mr Mehta explained.

He clarified that although JK Tyres and Industries has a strategic alliance with a Chinese tyre manufacturer for global supply, the understanding excludes the Indian market.

The domestic tyre industry, which grew at over 8% last fiscal, is expecting a rise of around 9% this fiscal, mainly on account of an over 10% increase in the passenger car sector, despite the rise in fuel prices.

“Cars are an aspirational as people want to move up from two-wheelers. So this segment is expected to grow at 10%, allowing the tyre industry to grow at a rate higher than that of the last fiscal,” Mr Mehta said.

15 Jun, 2008, 0022 hrs IST, ET Bureau

Source: economictimes.indiatimes.com