The spectre of cheap Chinese goods flooding the market and wiping out all competition in its wake is stalking the Indian tyre industry.
The automotive industry is up in arms while the government seems unperturbed. Everyone appears to have a different take on the story, so the perspective you get depends on whom you ask.
First, the facts. China’s share of the market for truck and bus radial has risen from 40% in 2013-14 to 70% in 2014-15. In the first half of 2015-16 it has reached an impressive 90%. In terms of actual volume, imported truck and bus radials from China rose from a monthly average of under 40,000 units to 57,000 units, and then to a staggering 110,000 units per month.
This is good news both for truckers and fleet owners who account for a huge chunk of the replacement market. Overloaded trucks that run on cheap tyres and operate on badly maintained roads and highways tend to wear out their tyres quickly.
India’s manufacturers have gained some respite from a decline in the prices of crude oil and natural rubber which has enabled them to keep prices competitive. But given the fierce undercutting – or dumping of cheap, inferior quality, unbranded Chinese tyres into India - domestic manufacturers are in for a rough ride.
Since the market for truck and bus tyres accounts for 60% of local manufacturers’ revenue, they will be forced to take drastic action to maintain market share and profitability. According to India Ratings and Research, Indian tyre companies will have to cut prices to remain competitive which will affect profit margins; if they don’t, they can expect sales volumes to fall significantly.
China has also increased its market share of passenger car tyres (PCR) from 45% to 48% so it’s not just the truck and bus radials that Indian manufacturers must worry about. However, the demand for quality in this segment means cheap imported tyres will not be able to find a ready market.
China’s slowing economy and the imposition of high anti-dumping duties on Chinese tyres in the US market has meant that the tyres are being redirected to India and South America. These tyres tend to be unbranded and of lower quality. There are no warranties or after-sales services, and no distribution network. Locally manufactured tyres are more cost-effective per kilometre than their
Chinese counterparts. All these features mean that local manufacturers will continue to dominate the market for quality tyres. This is an important consideration for large fleet operators as well original equipment manufacturers (OEMs).
However, India’s tyre manufacturers argue that if the Indian government wants to encourage local manufacturing (seen most recently with the ‘Make in India’ initiative), it’s going to have to take some action.
The Automotive Tyre Manufacturer’s Association (ATMA) - as well as various local manufacturers - have raised the issue with the government. These local manufacturers, such as Apollo and JK Tyres, have argued out that the devaluation of the Chinese Yuan is a response to the slowdown in China’s economic growth and designed to boost exports. The result? A doubling of Chinese tyre exports to India, including commercial, truck radial and passenger car radial tyres.
But the government plans to do nothing for now. It believes the recent spike in Chinese tyre imports may be a one-off and believes ‘it is too early’ to impose an anti-dumping duty. It has agreed to investigate and the matter has been referred to the Directorate General of Anti-Dumping (DGAD) and Director General, Safeguards. Meanwhile the Competition Commission of India (CCI) may be launching an investigation ‘against certain tyre companies for [the] alleged contravention of the Competition Commission Act, 2002’. Furthermore, the government has also pointed out that India is party to Foreign Trade Agreements (FTAs) that prevent it from raising customs duties above 10%, well below the 30% demanded by ATMA.
In response to ATMA’s complaints, the government has noted that Chinese imports are currently dominating ‘only one’ tyre category – truck / bus radial tyres, with 30% of the market for replacement tyres.
There are other ways the government can help. It can insist that Chinese imports adhere to quality control standards set by the Bureau of Indian Standards. It can reduce duties on raw material that have the odd counter-effect of making domestic manufacturing more expensive than imports.
In the absence of government support, local manufacturing could be adversely affected. Many firms are already operating below capacity; if the situation does not improve, then others may shelve or pull back expansion plans. As if this wasn’t enough, exports of off-road Indian tyres to the US are being investigated under the USA’s anti-dumping policies. These investigations could be expanded to cover other truck and car tyres if Indian tyres succeed in increasing market share in the US. Local manufacturers are wondering why their governmentcan’t take a similar stand for its own tyre industry.