A slack demand in the tyre market has upset tyre companies’ plans to import rubber and take advantage of low international prices. Tyre consumption recorded a marginal improvement in November but remained flat in December. This has forced tyre makers to adopt a wait-and-watch policy before adding to their inventory through imports.
With global rubber prices likely to remain subdued for some more time, tyre makers were gearing up for more import of natural rubber. The import of 40,000 tonne of rubber sanctioned by government at the reduced duty of 7.5 percent has more or less been completed.
"The tyre industry has decided to wait and watch before going for further imports as demand has not rebounded fully. Since there was some improvement in November sales, we were hoping it would be better in December. But the demand was flat last month," said Rajiv Budhraja, director general, Automotive Tyre Manufacturers’ Association.
During the period from August to October, truck and bus tyre sales dropped 12 percent over the April-July period. Passenger car sales fell 8 percent in the period.
Overall, tyre production slid by 7 percent in the three months ended October 2011. The scenario has not changed much in the subsequent two months and the industry doesn’t have high hopes for January.
Global rubber prices hovered around Rs 180 per kg in December while domestic prices remained around Rs 200 per kg. Even after considering the depreciation in rupee, imports are viable, say tyre industry sources.
"At the present international price, the landed cost of imported rubber will be around Rs 205 per kg. On the other hand, buying rubber from the local market and transporting it to the factories will take the cost to Rs 212 per kg," said George Valy, president of Rubber Dealers Association. The industry had earlier considered asking the government for duty-free imports factoring in the depreciation in rupee. But it now looks unlikely.
The sovereign debt crisis in Europe and lower offtake by China has kept the global rubber prices depressed. Chinese buying is expected to improve after their new year in January.
In Indian market, the future contracts are showing a bearish phase. The January contract for delivery is ruling at Rs 197. According to George Valy, growers may be reluctant to sell below Rs 200 per kg.