Kerala floods to hit tyre industry, says ATMA

By: | Published: August 22, 2018 1:44 AM

The incessant rains and floods in Kerala will cast a huge shadow on the natural rubber production and will in turn put pressure on the tyre industry, which is already facing widening gap in demand and supply.

kerala, kerala floodsThe NR import is imperative to meet the huge demand supply gap.

The incessant rains and floods in Kerala will cast a huge shadow on the natural rubber production and will in turn put pressure on the tyre industry, which is already facing widening gap in demand and supply.

The natural rubber production has already hit a 6-year low of 1.26 lakh tonne in the first quarter of FY19 while consumption stood at the highest level at 3.02 lakh tonne. The production-consumption gap has widened to 58% of consumption in the first quarter of current financial year from 46% in the year ago period making raw material scenario all the more worrisome, said Rajiv Budhraja, director general of the Automotive Tyre Manufacturers Association (ATMA).

“Yes, we expect NR production to be affected gravely due to incessant rains and floods. Kerala accounts for more than 85% of total domestic NR production. Already the gap between NR production and its demand is widening. In the first quarter of current fiscal, more than 40% of the demand for NR had to be met from imports in view of domestic deficit. The production during the months of July and August will be further affected in view of floods,” he said.

In response to FE query, he said as per latest data analysis, the NR production contracted by 12% while its consumption went up by 14% in the first quarter leading to widening of gap. The production-consumption gap stood at 1.76 lakh tonne in the first three months of ongoing fiscal against 1.21 lakh tonne in the corresponding period in FY18.

For second consecutive month in June 2018, NR consumption breached the one lakh tonne mark. The production on the other hand has remained below 45,000 tonne in each of the first three months. Domestic NR production has been declining even when domestic prices are ruling much higher than international prices.

“Domestic natural rubber production could meet only 42% of the domestic demand in Q1 of current fiscal. Such scarcity and grossly inadequate availability of domestic NR is leading the tyre industry to a precarious position.

“The dependence on expensive imports will need to go up significantly if tyre manufacturing operations are to be sustained in the country,” Budhraja said further.

According to him, raw materials are the lifeline of the tyre industry. Natural rubber, being the principal raw material accounting for over 40% by weight, is critical for the industry’s growth and competitiveness. However, consistent decline in the domestic availability of NR and its erratic supply is hurting the production process at tyre companies at a time when a large capacity is going on-stream.

The NR import is imperative to meet the huge demand supply gap. However, NR supplies are being squeezed in view of a restrictive policy environment. Customs duty on NR import is a steep 25%, higher than other NR importing countries, despite acute domestic crunch. Moreover, the tyre industry needs to adhere to pre import condition for NR import against (tyre) export obligation. Further export obligation period (for tyres) has been reduced from 18 months to only 6 months making it tough for the industry.

“The tyre industry is deeply anguished at the natural calamity that has hit Kerala and stands with the rubber growers in this hour of adversity. Hopefully, the production will go up as flood situation improves and the peak NR production period begins in September. Over the years, the uncertainties of weather surrounding NR production have become intense. Adverse heat conditions have also been contributory factor for drop in NR productivity,” he added.

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