Natural rubber accounts for over 20% of Kerala’s total area under cultivation and the southern state contributes the largest share (84%) of its output to the country.
The worst flood in over a century that Kerala faced in July and August is expected to adversely impact the Indian tyre industry. Natural rubber (NR), which accounts for 35% of the overall input costs (in values) in the manufacture of tyres, is expected to witness considerable shortage due to the inundation, resulting in pressure on operating margins for tyre manufacturers, said ICRA on Thursday.
According to K Srikumar, vice-president, Corporate Sector ratings, ICRA, “Inundation and landslides in a few districts, apart from the possible threat of diseases on immature plants, will dampen the production over the next few months, the critical tapping season. We expect the NR output to decline by 1.2-1.4 lakh tonne (or) 18-20% fall during FY19. With NR being a critical raw material, the sharp fall in output will have consequent impact on the Indian tyre industry.”
“NR accounts for 32% and 35% of total inputs, in volume and value terms, respectively, with other key inputs including crude derivatives like synthetic rubber (SR), carbon black, fabric, rubber chemicals. Tyre makers also use NR and SR inter-changeably to an extent, depending on the movement in prices and end-use of the product,” he added.
“As the domestic NR prices continue to increase due to supply shortage concerns, domestic tyre makers continue to import with the current landed costs, lower than domestic prices. However, with the expected rise in both domestic and global prices, exacerbated by the depreciating rupee, tyre manufacturers are likely to witness pressure on margins. ICRA expects a 100-bps contraction in the operating profit margins for FY19,” Srikumar said.
NR accounts for over 20% of Kerala’s total area under cultivation and the southern state contributes the largest share (84%) of its output to the country. It is followed by Karnataka, Tamil Nadu and northeastern states such as Assam, Tripura and Meghalaya.
India is the second largest consumer (8% of global output) of NR, after China. Despite India also being one of the key producers contributing over 5% to global output, it remains a net importer. During FY18, India produced 6.9 lakh tonne of NR but consumed 11.1 lakh tonne, with the supply gap being fully met through imports from Indonesia, Thailand and Vietnam. Imports have accounted for 40% of consumption in the past five years; and the same is expected to reach 50% during FY19 with the shortfall envisaged in output. In absolute terms, NR imports are expected to reach an all-time high of 5.3-5.5 lakh tonne during FY19.