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RUBBER STAKEHOLDER NEWS : Wanted, a national rubber policy June 19, 2018
(Last Updated: 19 Jun 2018)

 

 

India: Wanted, a national rubber policy

This vital sector has seen its fortunes fluctuating over the years and is in dire need of a comprehensive national policy.

 

 Rubber policy Slippery slope   –  THE HINDU

The long awaited release of the government’s first ever report on a national rubber policy (NRP) has still not come out. Apparently, differences of opinion among members of the expert committee representing various stakeholder groups had been the major reason for withholding the document for more than three years.

Meanwhile, mounting pressures from the Kerala Government and natural rubber (NR) producers’ interests led to the constitution of a task force by the government on March 22 to submit a report for the revival of rubber sector. Unfortunately, a consensus on the need for a NRP remained elusive due to the conflict of interests arising from a higher regional concentration of NR production vis-a-vis the diffused pattern of rubber consumption.

The strategic need for evolving a NRP in India stems from the unique characteristics of the sector borne out of its evolutionary dynamics over time.

The emergence of India as a major player in the world rubber economy had been unique for the interconnectedness among the segments rooted in the domestic market orientation that evolved under a protected policy regime since the early 1940s. This is in sharp contrast to the development of export-oriented ‘rubber enclaves’ in other major producing countries with the exception of China. In essence, the domestic demand-driven interconnectedness with limited exposure to export markets and external competition had been the hallmark of India’s rubber sector.

Post reforms

However, the trade policy reforms initiated since 1991-92 and the consequent exposure to foreign competition through the multilateral and RTA routes have changed the scenario. The challenges of market integration characterised by a surge in imports of rubber and rubber products are played out in the domestic market than in the export markets.

It is the unorganised smallholder rubber and non- segments that have borne the brunt of of the market integration process. The volatility of NR prices and the fluctuations in farm income have hit the conventional farm management practices including replanting.

One outcome this trend has been a steady growth in the share of senile trees (more than 50 per cent) in the total tapped area in the country. The negative growth rates in NR productivity in Kerala (- 2.8 per cent) and all India (- 2.7 per cent) between 2007-08 and 2016-17 show that the policy prescriptions have failed. Similarly, the crisis-ridden non-tyre segment has been hit by the volatile raw material prices and growth in imports. On the external trade front, a negative balance of trade of India’s rubber sector since 2007-08 has been in contrast to the positive balance of trade during the past four decades. In 2016-17, India’s negative balance of trade in rubber and rubber products was $415 million. So the segmented approach has failed in addressing the challenges of the sector.

Unlike other major NR producing countries the export intensity of India’s rubber sector had been negligible. The estimated export intensity was only 22.5 per cent even during 2014-15. Hence, sustaining a self-reliant rubber sector having applications ranging from household articles to the space programme is a major policy challenge. Nevertheless, the need for a NRP looms large in the context of market integration process sustained by the non-negotiable trade policy commitments under the multilateral and regional pacts.

Though India has recognised the relevance of a sustainable rubber sector as early as 1942 there is no replicable model to address the challenges of market integration. China’s ‘Going Global’ strategy initiated in 2002 is a valuable template. The establishment of China Natural Rubber Association in 2007 and the Rubber Valley Project by China Industry Association in 2011 provided the institutional framework.

India cannot afford the luxury of witnessing a gradual disintegration of its rubber sector built over the past seven decades for the sake of free trade. A comprehensive NRP is not only inevitable to recognize the strategic importance of sustaining a self-reliant rubber sector but also to identify the inherent strengths and accumulated weaknesses of the embedded structure to capture synergies in the era of market integration.

(The writer is former Joint Director of the )

Rubber growers fume as Centre tweaks rule to let in more imports

In a largely unpublicised move, the Union government has said port restriction will not be applicable to the import on natural rubber (NR) for all varieties, a move which will depress the domestic NR.

Express News Service

KOCHI: In a largely unpublicised move, the Union government has said port restriction will not be applicable to the import on natural rubber (NR) for all varieties, a move which will depress the domestic NR prices. The restriction has been lifted for imports through the Chennai Port and Nhava Sheva (Jawaharlal Nehru Port).

However, the port restriction shall not be applicable to imports under advance authorisation.
The advance authorisation allows duty-free import of inputs (NR in this case), which are physically incorporated in the export product (making normal allowance for wastage). These include the fuel, oil, energy, catalysts which are consumed/utilised to obtain the export product. The relaxation allows tyre makers to import the large quantity of NR and advance authorisation gives them six months’ time to export the final product. Growers reckon the move will affect the domestic prices of NR.

Santhosh Kumar, senior vice-president, Harrisons Malayalam Ltd (HML), said almost 30 per cent is imported under this scheme now. “Depending on the price, more quantity can be imported,” he said.
According to him,  the importers also get six months to export the final product.

For RSS-3 grade of rubber, the price in Bangkok was Rs 111/kg on June 13 while the price in India was Rs 123/kg. “Importers can use this scheme when the prices suit them, as is the case now,” said Joshy Joseph Maniparambil,  Kerala Farmers Federation (KeFF) general secretary, said, “We had requested not to include Chennai. Unfortunately, they have included the Chennai Port too. This will have a sudden effect on the local prices as most of the tyre industries are located in and around Chennai.”
Santhosh Kumar too flagged a flaw in the scheme.

“Under the scheme, which was drafted in 1971, it is presumed a tyre contains 44 per cent of natural rubber. So, for a 100 kg import, they can get away by exporting two tyres. However, technology has changed and the synthetic content in the tyres is so much a tyre now contains only 18-20 per cent of NR,” he explained.
This means, with the same quantity of rubber imports, a company can sell three tyres locally even while meeting the export commitment of two tyres.

 
 

“We need to bring in changes to the rule, given the changes in technology and the drastic reduction in rubber content in the tyre industry,” he said. Rajiv Budhraja, Automotive Tyre Manufacturers’ Association director general, could not be reached for his comment.

 

 

 

 

Research body voices concern over cheaper imports of natural rubber

Natural rubber sheets being dried in sunlight near Kochi, Kerala. KK Mustafah   -  The Hindu

KOCHI, JUNE 7

The Indian rubber industry’s over-dependence on imported, cheap natural rubber may be highly unsustainable, posing serious challenges for its growth and competitiveness, said Rubber Research Institute of India.

There are clear indications that the industry is losing its momentum and its contributions to the economy are on the decline in recent years, a study carried out by the RRII said.

There are structural changes happening to the industries of major natural rubber exporting countries and availability of cheap rubber in the international market cannot be taken for granted, it observed.

Natural rubber has a dominant role in the rubber industry, as it constitutes 66 per cent of the total amount of rubber the industry consumes. In recent years, rubber production has been on the decline as a result of growers abstaining from tapping the trees because of non-remunerative price.

Despite declining domestic production, rubber consumption and the industry continued to grow, albeit at lower rates, with substantial imports. The longer the decline continues, the more difficult it will be to reverse the trend because of the perennial nature of the crop, the study said.

Indian rubber industry is too important for the economy to be left to the uncertainties and vagaries of supply issues in the global market for long.

The study, therefore, suggested proactive steps to sustain the domestic rubber production base with adequate public investment are urgently required to ensure sustained domestic supply to the industry.

In a major relief to farmers who are reeling under stress of low rubber price, another study by the institute suggested cultivation of cocoa as a potential inter-crop for mature rubber under tapping.

RRII has successfully demonstrated the initiative on a small landholding in Kerala representing the central traditional rubber growing tract in India.

 
Published on June 07, 2018

 

 

Worn down by raw material shortage, tyre industry wants rubber import barriers lifted

KOCHI, MAY 29

The tyre industry has expressed concern over the widening imbalance between domestic production and consumption of natural rubber.

According to Automotive Tyre Manufacturers Association, rubber production-consumption gap of 4.7 lakh tonnes projected for the current fiscal (2018-19) is a historic high and domestic availability scenario is getting dimmer. ATMA has asked for urgent measures to make rubber available to the industry by making imports easier.

The gap between domestic production and consumption has been widening in the last few years. From a shortfall of 60,000 tonnes in 2011-12, to 4. 1 lakh tonnes in the last fiscal and is projected to grow to 4.7 lakh tonnes in the current.

Domestic production is projected to be 40 per cent short of requirement. This is a matter of grave concern as the tyre industry has lined up investments in line with growth in auto industry. “Needless to say the import dependence of industry for rubber will further go up to meet the domestic requirement”, said Rajiv Budhraja, Director General ATMA.

The industry has been bearing the brunt of heavily taxed rubber imports to keep the factories running. While rubber import is imperative to meet the domestic demand, the policy environment is highly restrictive. The Custom duty is at 25 per cent much higher than the rate of duty levied by any other importing country. Moreover imports are permitted at only two designated ports (JNPT and Chennai). Such non-tariff barriers add to the landed cost and logistics time.

There are further road blocks in accessing rubber. The industry needs to adhere to pre-import condition for import against (tyre) export obligation. Further export obligation period (for tyres) has been reduced from 18 months to only 6 months making it tough to access a raw material which is in short supply domestically, he said.

It has asked the Ministry of Commerce & Industry for duty free import of rubber equivalent to the projected domestic deficit as high import duty is hurting the price competitiveness of the industry. The industry consumes 65-70 per cent of the rubber produced in the country. However it is facing scarcity as availability of rubber is significantly curtailed in the ongoing lean months.

On priority, the industry has asked for import of rubber on a tariff rate quota (TRQ) basis at ‘nil’ rate of duty to the extent of gap between domestic production and consumption. It has also asked for removal of port restrictions and other restrictive measures which make the field uneven for the domestic industry vis-à-vis international counterparts.

 
Published on May 29, 2018

 

India: Tyre companies up prices by 1-3%

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Chennai: First it was the car and SUV companies that hiked prices earlier last month and now tyre companies are following suit. A number of tyre companies have already announced price increases including Apollo, Yokohama and Continental while others like Ceat are likely to take a call soon. Tyre companies said the price hikes — in the range of 1-3% on various segments — is mostly to compensate for increase in raw material prices.

“We have been increasing prices across the range in a phased manner since February. The same will conclude by May end. Different categories will be hiked on different dates. During this phased implementation, the extent of increased weighted is approximately 1.5-2%,” said Satish Sharma, president –Asia Pacific, Middle East and Africa, Apollo Tyres. The markup, he said, is in response to increasing raw material prices. In fact, the current hikes don’t cover the actual increase so there may be more price increases in the future.

“This increase is insufficient to offset the raw material cost and energy cost increases and we may need to look for another round of increase in the short term provided the competitive intensity of the market allows for the same,” said Sharma.

Continental too is increasing prices by upto 3% by May 16. While Yokohama India sent an intimation to its dealers that it will increase tyre prices on different categories by 1-2.5% with effect from April 29, said SP Singh of the AITDF (All India Tyre Dealer Federation). CEAT’s executive director Arnab Banerjee said that, “While rubber prices have softened, crude remains a concern. There could be some minor price escalation on account of raw material price hike and it is likely to be 1% or lesser.” Tyre major MRF, which saw a 25% drop in net profits in FY18, has also cited concerns over crude based inputs.

 

However dealers say the hikes don’t follow the price curves of raw materials. “Tyre prices are prevailing at the level when natural rubber touched the peak of Rs 242/kg and now it has come down to Rs 112/kg (RSS 4 grade). Crude oil based inputs like synthetic rubber, carbon black, nylon tyre fabric and rubber chemicals are based on crude price level of $115/bbl in 2013.When crude price plummeted to $40/bbl and crude based inputs also came down, tyre prices, which were earlier raised by 22-30%, were not rolled back. Even now crude is at $74/bbl, lower than previous peak of $115/bbl,” said AITDF’s Singh.

 

By Sharad P Matade:

In spite of stiff competition from other States such as Andhra Pradesh and Gujarat, Tamil Nadu continues to be an investment hot-spot for tyre majors which already have a foothold in the State and are on an expansion mode

The enterprising Indian State of Tamil Nadu has always been an investment hot-spot for tyre manufacturing companies owing to local skill availability, infrastructure in terms of port logistic and roads, ecosystem and its proximity to the natural rubber producing State of Kerala.
In spite of stiff competition from other States such as Andhra Pradesh and Gujarat, Tamil Nadu continues to be a favourite manufacturing hub for tyre companies. Recently, Ceat announced its plan to build a radial tyre manufacturing plant in Sunkuvarchatram near Chennai. The Mumbai-based tyre company has bought 163 acres of land
and will make an investment of Rs. 50 billion to produce nearly 150 tonnes of tyres a day for cars, trucks and two-wheelers in the first phase.
With this announcement, Ceat has joined the club of major tyre companies such as Apollo Tyres, Michelin, TVS Tyres, MRF and JK Tyre who have major manufacturing plants in the southern state.
It was real estate consultant JLL India that facilitated the 163-acre land transaction for Ceat in Chennai. Says Sarita Hunt, Managing Director – Chennai & Coimbatore, JLL India: “The primary reason for Ceat to choose Chennai, and specifically this land parcel, for this investment was the proximity to OEMs like Hyundai, Renault Nissan, Ford, Daimler, KIA, Isuzu, etc.”

Automobile hub

Of late, the emergence of Chennai as an automobile and auto components hub has added attraction for tyre companies. The Automobile and Auto Components Policy 2014 of Tamil Nadu was brought out with the aim of generating 500,000 jobs and making Chennai one of the world’s top five auto clusters.
According to reports quoting Deputy Chief Minister O Panneerselvam, the present Government is reworking the New Industrial Policy launched in 2014 keeping in tune with new developments.
Currently, big names like PSA, Peugeot Citroën, Schwing Stetter XCMG, Freudenberg etc are lining up for major investments in Tamil Nadu. Existing companies like Hyundai, Samsung, Ford, Foxconn and Saint Gobain are on expansion mode.

Apollo plans big

Major tyre companies have been ramping up their production at their plants in Tamil Nadu. Apollo Tyres’ greenfield plant, which recently produced its millionth passenger vehicle tyre, will see more investments in future. The Gurgaon-headquartered company has signed a supplementary MoU with Tamil Nadu, whereby the planned investment in the Chennai greenfield has been increased to Rs 21billion with a commitment to provide employment to over 2,000 people.
This is a revision from the original MoU signed in August 2006, which committed Apollo to an investment of Rs 4.5 billion in 5years. Currently, Apollo Tyres’ Chennai plant produces 7,000 passenger vehicle tyres and1,300 truck-bus radials per day. The company has four manufacturing units across three states – one each in Gujarat and Tamil Nadu, and two in Kerala. It also has two manufacturing units in Europe – one each in the Netherlands and Hungary.
The Kanwars-led company has also opened its Global R&D Centre Asia, in Chennai, which employs 140-odd people and services the product development needs of the entire Asia Pacific, Middle East & Africa regions. This is Apollo’s second Global R&D Centre after the Global R&D Centre Europe, in the Netherlands, which has been operational since 2013.

MRF’s massive investment

Another tyre major MRF already has a major presence in Tamil Nadu. It has manufacturing units in Tiruchi, Perambalur and Arakkonam. In March 2015, the company announced that it would invest a whopping Rs. 45 billion in expansion over the next seven years. In a filing to the BSE, the Chennai-based company had said it would sign a pact with the State Government in this regard.
“The Government of Tamil Nadu considered the above proposal and decided to accord Ultra Mega Project Status under the Tamil Nadu Industrial Policy 2014,” the company says. MRF’s other manufacturing units are in Medak (Andhra Pradesh), Goa, Kottayam (Kerala) and Puducherry.
MRF is also making huge investments in R&D, which has led to the launch of a range of high-performance tyres. The company recently released the PERFINZA range of luxury and premium range of tyres developed by MRF R&D in Chennai.
JK Tyre & Industries invested over Rs 14.30 billion in the first phase of expansion of its Chennai plant. This has raised the plant’s capacity of TBR tyres from 400,000 to 1.2 million, and PCR capacity from 2.5 million to 4.5 million per annum. The total capacity of the plant is 5.7 million tyres per annum.
TVS Srichakra, with plants in Madurai and Pantnagar, has gone in for massive expansion of its production capacity in recent years. In 2016, the company increased its production of tyres from 2.3 million units per month to 2.4 million units per month and later to 2.5 million units. To scale up production capacity at its plants, TVS Tyres has invested in a capex of Rs.1.60 billion. TVS Srichakra also manufactures two-wheeler bias tyres for Michelin at its Madurai plant.
International tyre giant Michelin has also joined the race in ramping up the production capacity. In October 2017, Michelin inaugurated a new state-of-the- art production line for the Michelin X Guard range of radial truck and bus tyres at its Chennai plant.
The new production line will help double the current capacity of the plant by 2018 which will help the company cater to increased demand from both the replacement market and original equipment manufacturers in the country.

Political uncertainty

However, there are worries that the prevailing political uncertainty in the State may hit new investments in the manufacturing sector. Meanwhile, other States are too trying to woo tyre majors who are well-established in Tamil Nadu.
Recently,Apollo Tyres purchased 200 acres of land from the Andhra Pradesh Government to set up a manufacturing facility for passenger vehicle tyres. The company will pour Rs. 18 billion into the plant which is expected to commence production in the next two years.
Gujarat is also posing a tough competition to Tamil Nadu. MRF is reported to have plans to set up a new tyre manufacturing unit in Gujarat with an investment of about Rs 45 billion. “The company signed anMoU with the Gujarat Government expressing its in-principle plans to set up a manufacturing facility for automotive tyres, tubes, flaps and related products,” stated MRF in a filing with stock exchanges.
MRF’s Gujarat plant is expected to come on stream by 2020. Gujarat already has manufacturing plants of Ceat and Apollo.
The Tamil Nadu Government has to adopt a more investor-friendly approach if the State is to retain its position as an investment destination for the tyre industry.

 

How will US-China trade tensions impact Indian tyre manufacturers?

One must tread cautiously as there could be some negative implications for the Indian tyre industry if China decides to dump surplus tyre production at throw away prices to clear stock
In domestic markets, the price of RSS Grade 4 rubber is down by nearly 25% in a year on better-than-expected production. And weak international sentiment is fuelling the fall. Photo: Mint
In domestic markets, the price of RSS Grade 4 rubber is down by nearly 25% in a year on better-than-expected production. And weak international sentiment is fuelling the fall. Photo: Mint

Rubber prices on the Tokyo Commodity Exchange have plummeted 17% in just three months. And the domestic price of RSS Grade 4 rubber also fell 6% in three months and about 24% from the year-ago level.

The initial trigger was the forecast of a rubber supply overhang in international markets for 2018. But in the last few weeks, prices of this commodity that widely supports the automobile industry as the key input in the manufacture of tyres, succumbed on fears of an intensifying trade war between the US and China.

The problem lies in that China is the world’s largest producer of automobile tyres, followed by the US. But the bone of contention is China’s position as the world’s largest exporter of tyres—it exports nearly two-thirds of its production. In fact, the US’s position in the international markets has weakened with tyre exports contracting by a fourth (2016 data).

 

So the worrisome question is—will China’s tyre industry get caught in the tariff crossfire between the two nations? According to a Bloomberg report, the Chinese products in the proposed US tariff list includes new and retreaded pneumatic tyres and non-radial rubber tyres used in aircraft. Analysts expect that with China’s retaliation, the scenario may worsen in terms of including a wider range of products.

Any cutback in US imports due to unviable duty structures is bound to puncture the revenue and profits of Chinese tyre firms. In July 2015, when the US imposed hefty punitive tariffs on Chinese tyres, there was collateral damage to rubber exports from South-East Asian countries, that finally saw prices plunging down.

Further, the Chinese industry is already suffering from lower production due to environmental restrictions and a slowdown in domestic automobile growth rates.

 

Therefore, the speculation and fall in rubber price futures is not surprising. Meanwhile, trade tensions have come at a time when the international markets had already estimated a supply glut in rubber during the year. In fact, spiralling rubber prices had started cooling off since October in international markets.

In domestic markets, the price of RSS Grade 4 rubber is down by nearly 25% in a year on better-than-expected production. And weak international sentiment is fuelling the fall.

Tumbling rubber prices bode well for this industry, where rubber comprises about two-thirds of the total cost of production. Further, this could offset the adverse impact of rising crude oil prices—another input in tyre production.

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