Rubber prices are at fresh 18 month highs as prices last week hit Rs 150 per kg. Most tyre makers have hiked prices by 2-6% in March. Further price hikes are likely in April. Rubber prices account for 45% of total raw material cost.
Prices of rubber have notched up 70% in the last six months. Crude derivatives have seen a surge in prices in recent months and are up 15% since the second quarter of FY10. Meanwhile, tyre makers maintain that a price of Rs 85 per kg price will not be too harsh on them to hold margins.
In an interview with CNBC-TV18, Neeraj Kanwar, VC & MD, Apollo Tyres, gave his outlook on rubber prices and the road ahead for tyre manufacturers.
Q: When would you undertake another price hike and what would the quantum be?
A: The prices of natural rubber are again today at an all time high of around Rs 165 per kilo. Even internationally rubber has gone up to around USD 3,500 per metric tonne. We have taken some price corrections in the month of January and February including in March where we have taken a price increase of around 7.5%.
But given the pressure that we have on natural rubber, especially as you know 60% of our raw material is because of natural rubber, it would mean that as an industry we need to take price increases of higher than 15% over the next 2-3 months. We are taking it up with the government because this is hurting the industry. Prices are higher today from last year. It was at an average of about Rs 70 a kg which today is at Rs 165 per kg. So there has been an increase of as high as Rs 90-100 per kg.
Q: So you have undertaken a price hike of 7.5% already and you plan to up that further in the next couple of months?
A: Yes we would have to because our margins are under pressure and given the way we see natural rubber increasing we would need to take these price hikes.
Q: You did mention earlier that margins are not going to be sustainable at that 15.5% level that you showcased in Q3. How much pressure are you expecting in the next couple of quarters on your margins and what would the figure stabilize at?
A; I can't quantify that. We believe we can do better margins. But today given the pressures on natural rubber, as I mentioned to you in Q3, the margins are under pressure and I can't quantify that.
But at the same time there is a huge increase in demand and we have seen that in the automotive sector. So in order to really give a boost to the tyre industry we need the correction in natural rubber prices. Otherwise as an industry we are getting hurt in this aspect.
Q: On the export front when I spoke with you last, you said that you are seeing a good bit of traction in many of the geographies, can you tell us what kind of expectations do you have going into the next quarter?
A: Export business is at around 10-11%, we are not seeing a major increase happening there but yes as far as passenger radials are concerned there is a huge demand coming in exports market also but today domestic demand is so bullish that whatever the Indian tyre industry is producing we are looking at the consumption and the domestic level.
But again our main issue that remains on board is the natural rubber prices. What happens is that an increase in Re 1 per kg is translating into an additional financial burden of nearly Rs 60 crore to the tyre industry. This is something which is really hurting us.
Q: Do you think that this entire 15% that you are expecting on the tyre prices will be digested by the market because we do understand that OEMs have given a go ahead for a hike in the prices but to such a large quantum don’t you think that is a little concern?
A: Yes that is a major concern and that is why as chairman of ATMA I have written to the Prime Minister and to the government and basically we need a correction here because what is happening is that there is a huge protection for the natural rubber growers and we are not being able to import natural rubber with duty free imports.
Today we have an inverted duty structure where natural rubber is at 20% customs duty and our finished goods is at 7-8.5%. We have been taking it up with the government but we have not been getting any respite even after taking up the matter with various government bodies and the Centre.
So we have written to the PM hoping to see that there is some correction for natural rubber. We have also voiced our opinion, and maybe in the past the government has on their own imported natural rubber to the tune of 100,000 metric tonnes. We have requested them to see that they are able to import 200,000 metric tonnes of natural rubber thereby giving some respite to the tyre industry. I hope this has a positive impact from the government.
(moneycontrol.com)
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