Lower input cost to help tyre cos tide over crisis

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Mumbai: After taking a major blow last fiscal, tyre manufacturing companies expect to end this financial year (FY10) with improved numbers and better balanced production costs. This is on the account of raw material prices which remained under control in the beginning of the year, with rubber prices expected to settle down further around August, and revival seen from the original equipment manufacturers (OEMs) and replacement market.

“Last year, our operational cost had shot northwards, impacting our margins as rubber prices touched its peak in July 08. Fortunately, rubber prices have stabilised in the past few months and we are hoping that it will continue to remain stable, making it possible for us to protect our customers’ interests,” said Sunam Sarkar, chief financial officer, Apollo Tyres Ltd. He added that towards the beginning of the last year, the industry was hit hard by a steep rise in raw material prices. “By the time it stabilised, global economy had gone into a massive slowdown mode, which impacted India as well,” Sarkar said.

Adds Sunil Sapre, chief financial officer, Ceat, “The position is comfortable till August'09 or so. After that we expect rubber prices to settle at a lower level as the tapping season sets in. However, if rubber or other material prices happen to be on the higher side for any reason, one has to consider price hike.”

Rubber prices had touched Rs 136 per kg as on week ending July 26, 2008. Currently, the prices are hovering around Rs 100 per kg as on week ending June 13, 2009.

Rubber prices make up to 50% of the cost of tyre and hence any fluctuation in the former has an immediate impact on tyre prices. Further, the next important raw material that has significant impact on the price is carbon black, which is determined by crude oil prices. At present, crude oil prices are hovering around $72 a barrel.