Tyre industry demands duty-free import of 100,000 tonnes of natural rubber

Written by M Sarita Varma | Thiruvananthapuram | Updated: Feb 3 2012, 08:12am hrs
The tyre industry has raised the pitch on its plea for allowing duty-free import of 100,000 tonnes of natural rubber (NR), arguing that rising prices of domestic rubber is pushing up input costs. Moreover, given that the automobile industry is revving up again, there is a fear of raw material shortage in the current year.

The rubber boards shortage estimate, say tyre manufacturers, falls short by at least 29,275 tonnes. The board pegs the gap between demand and supply in the current fiscal at about 70,725 tonnes. The real shortfall, according to the Automotive Tyre Manufacturers Association (Atma), could be as high as 100,000 tonnes.

In a note to the finance ministry, Atma says the industry has passed through a difficult phase of continuous and significant increases in the price of NR and other key raw materials. Since raw materials account for approximately 70% of the industrys turnover, the input cost pressure has resulted in severe erosion of net margins of the tyre industry, says the Atma memorandum.

Despite peak NR production season in India (October-February) and favourable weather conditions, the domestic availability of NR is a key concern. With new capacity creation in the tyre industry and limited growth in NR area under cultivation, the availability situation may aggravate, says Neeraj Kanwar, chairman, Atma. At this juncture, to ramp up competitiveness, Atma has also demanded waiver of customs duty on raw materials that have no domestic production, like butyl rubber, styrene butadiene rubber (tyre grade), EPDM rubber and polyester tyre cord. The existing customs duty on these raw materials is 5%, 10%, 10% and 5%, respectively.

The tyre industry says the steady rise in NR prices till second quarter of 2011-12 has dented competitiveness and profitability. The industrys net profit as a percentage of net sales, which was 8.84% in the second quarter of 2009-10, came down to 3.23 % in Q2 of 2010-11 and -0.07% in Q2 of 2011-12.

NR accounts for 45% of total raw material cost for the tyre industry. Despite a recent softening of NR prices, the average price in the current fiscal is still 10-12% higher than the average prices in the previous fiscal, when prices touched unprecedented levels. Vinod T Simon, president, All India Rubber Industries Association, told FE that a lot of SMEs in the rubber sector were in dire straits because of high NR prices and low import duty on finished goods. From November to January, the automobile industry has done better, triggering higher NR consumption, he says.

Rubber Board sources say NR production and consumption in India had been perfectly matched. However, since 2007-08, domestic NR consumption has overvaulted domestic production. India has become the second largest consumer of NR in the world, but ranks fourth in production. A board spokesman says there was a growth of 5% in NR output in the last season. NR production moved up to 679,000 tonnes in April-December 2011, versus 651,000 tonnes in the corresponding period in 2010. In December 2011, production was 104,000 tonnes, dipping to 103,000 tonnes in the corresponding month in 2010.