Pakistan News

Fall in rubber production, woes of tyre industry

Fall in rubber production, woes of tyre industry

IT is a familiar clash between growers of a commodity and the end-users. And just as commodity prices are cyclical, so too are the fortunes of producers and users. India’s rubber sector, which has been plagued by sharply declining prices for the past few years, is witnessing a gradual shift in demand and supply.

And this time, it is the rubber growers who are having an upper hand, as the tyre and other rubber-consuming industries complain of escalating prices. Last week, tyre makers in India bemoaned that the industry is caught between a rock and a hard place: while natural rubber prices are soaring, tyre imports are also ballooning, hurting the domestic tyre manufacturers.

Tyre prices were deflated for much of the past year, having dipped to a six-year low of Rs90/kg. But over the past two months, they have jumped by 20pc. International rubber prices have also climbed by about 15pc.

For tyre manufacturers, natural rubber accounts for nearly 40pc of the raw materials cost. The industry fears that profitability will be hit over the coming months, with rubber prices climbing sharply. The Indian tyre industry has had it good over the past few quarters, with natural rubber prices having bottomed out.

Sluggish growth in the automobile sector could impact demand for tyres over the coming months and high prices would result in dampened demand for replacements.

The Automotive Tyre Manu­facturers’ Association (ATMA) points out that high import duty on natural rubber, combined with lower duty on tyres are playing havoc with the fortunes of the industry. This has led to indiscriminate imports and dumping of tyres in India.

Citing official data, ATMA says that every month more than 100,000 truck and bus radial (TBR) tyres are imported into India, accounting for 40pc of the replacement demand. Over 90pc of the imports of TBR tyres are from China, says the ATMA.

“Natural rubber is the primary raw material for manufacturing tyres,” remarks Rajiv Budhraja, director-general, ATMA. “With domestic rubber production sliding down, the industry has no other option but to import rubber even though there is a stiff import duty of 25pc, perhaps the highest in the world.”

According to Budhraja, during the first 11 months of the current fiscal (April to February), there was a demand-supply gap of 367,000 tonnes of natural rubber in India. Imports added up to 393,000 tonnes, which is not ‘excessive,’ he argues.

Besides the tyre industry, other sectors consuming rubber also believe that it is important to import natural rubber to bridge the gap between domestic product and consumption.

“How can industry be penalised for rubber imports when domestic rubber production is so short of consumption,” asks Mohinder Gupta, president, All India Rubber Industries Association, the apex body of micro, small and medium enterprises (MSMEs) consuming rubber. “Rubber imports are a must, but the government levies 25pc duty on imports.”

RUBBER growers, however, are opposed to the increasing imports of natural rubber. Last month, the United Planters’ Association of Southern India (Upasi), called for a national rubber policy to check the imbalances in the sector.

Upasi expects natural rubber production to drop to 560,000 tonnes this fiscal, from last year’s production of 640,000 tonnes. Imports are expected to rise to 460,000 tonnes, up from last year’s 440,000 tonnes. Rubber consumption is India is around a million tonnes annually.

N. Dharmaraj, president, Upasi, said the government should take up issues such as import targets and sustainable price for rubber. According to him, tyre manufacturers are apparently holding on to inventories, built up when prices had dipped to record lows.

High imports of rubber go against the government’s ‘Make in India’ initiative, points out Dharmaraj.

Tyre companies also prefer technically specified rubber (TSR), which is cheaper than the superior quality rubber produced in India, he adds. Less than 15pc of Indian rubber is TSR, but it accounts for 70pc of imports.

Dharmaraj says the low prices of the recent past have spelt misery for the 1.2m growers, most of who are in the southern state of Kerala. The state accounts for 85pc of natural rubber grown in India and the commodity contributes 45pc to the state GDP.

Growers are abandoning tapping, says Dharmaraj and tapping areas, as a percentage of total rubber growing areas, have fallen to 56pc.

Dumping of imported rubber products has damaged MSMEs in the country, says A. Jayathilak, chairperson, Rubber Board. She feels that excessive import of rubber products including tyres, often on account of dumping and tariff concessions under various free trade agreements, is critical to the future of the rubber sector in India.

The opposition Congress has also lashed out at the BJP-led National Democratic Alliance (NDA) government for the alleged failure of its rubber policy. According to former minister and senior Congress leader Jairam Ramesh, India’s rubber imports have surged because of ‘poor investments’ in the Rubber Board.

Ramesh accuses the NDA government of ignoring the board, by not even appointing a full-time chairman, or ensuring that it meets at least twice a year, as statutorily required. But for more than 18 months there is no board, he says.

Of course, with state elections being held in Kerala on May 16 — along with elections in Tamil Nadu and Puducherry — the fate of the rubber industry — including growers and workers — is likely to become a major political issue.

The BJP, which has virtually no presence in the state, is hoping to make a significant mark in Kerala’s politics, traditionally dominated by the Congress-Muslim League alliance and left parties. The central parts of the state, where much of the rubber is grown, is controlled by the Congress and its allies.

Rubber growers in the state are hoping that global demand for the commodity will pick up over the coming months. According to estimates, world demand for rubber is expected to rise 3.9pc annually till 2019. Five of the fastest-growing markets are in Asia — Indonesia, India, Vietnam, Thailand and China — with the region expected to account for two-thirds of global demand in just three years.

Published in Dawn, Business & Finance weekly, April 4th, 2016

Similar News
Recent News
Back to top