Volatility in natural rubber (NR) prices has industrial consumers like tyre firms and rubber product manufacturing units in the MSME sector in a spot of bother.
The All India Rubber Industries Association (AIRIA) and the Automotive Tyre Manufacturers Association (ATMA) have urged that Centre should look into the acute deficit of NR in the domestic market immediately.
Quoting the latest Rubber Board data on NR production, AIRIA says that domestic NR production has hit a multi-year low and there is a major NR availability crunch in the domestic market. The Rubber Board had, this week, released data that showed rubber production in 2015-2016 at 5.63 tonne, a 13% fall in output compared with the previous fiscal.
“Such a drastic fall in production is a cause of major concern for rubber MSMEs. There is no option but to import NR but the government has imposed a stiff 25% import duty. Not only that, other curbs such as port restrictions on the import of NR have been imposed and the export obligation period has been drastically reduced. In the absence of raw material availability at reasonable prices, how will the industry be able to mange its competitiveness?” said Mohinder Gupta, president, AIRIA. “The government needs to look into this concern immediately,” he said.
AIRIA has also expressed concern at the volatility in NR prices. “Such sharp volatility in raw material pricing seriously disrupts the planning process especially at small rubber units. MSMEs sign long-term pricing contracts with buyers of rubber goods, keeping in view the expected trend in raw material prices. However, in view of an almost 50% jump in NR prices in a short time, the profitability of MSMEs will take a severe beating. MSMEs can’t absorb such a sharp rise in raw material prices, as competition is intense and profit margins are under pressure. Our export competitiveness will also be impacted as cost of production will go up,” added Gupta.
AIRIA claims that the Prime Minister had assured that rubber products manufacturing will be included in the Make-in-India scheme. However, this is only possible if raw material is available in adequate quantities and at reasonable and stable prices, says Gupta.
According to rubber MSMEs, India already levies one of the highest duties on the import of NR and one of the lowest duties on import of finished rubber goods. As a result, the competitiveness of the Indian rubber industry is affected and many rubber units have already closed down.
The rubber industry in India is dominated by the small and medium sector; of 5,500 rubber products manufacturing units, 90% are MSMEs. Rubber units spread across the country manufacture around 35,000 different rubber products for auto, defence, healthcare, agriculture and various other critical sectors.
Meanwhile, tyre firms, the major buyers of domestic NR sheets, are also angry at the price vagaries. According to Rajiv Budhraja, director general, ATMA, “NR production has hit a multi-year low and the gap between production and consumption has reached an all-time high. There will be no other option for the tyre industry but to import rubber during FY17. Beyond the fact that prices have moved up, there is acute deficit of NR in the market,” says Budhraja.