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RUBBER STAKEHOLDER NEWS : How will US-China trade tensions impact Indian tyre manufacturers?
(Last Updated: 16 Apr 2018)

 

 

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.

 

Tyre sales have been zooming and will continue to do well on the back of rising domestic vehicle sales. Demand from both the original equipment and replacement market segments is estimated to sustain at the current robust levels, at least for another year. Therefore, strong revenue and low raw material cost is the perfect recipe for improving profitability. Hence the euphoria seen in tyre stock counters is justified. Stocks such as Apollo Tyres Ltd, MRF Ltd, and JK Tyre and Industries Ltd have jumped by 15-20% since October, backed by strong revenue growth in the last two quarters.

But 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 throwaway prices to clear stock. So far, the anti-dumping duty in India is keeping Chinese imports that wreaked havoc on Indian tyre manufacturers, at bay. But industry experts say that tweaking the tyre grades can help circumvent the tariff classification.

For the near term, domestic tyres firms are on a roll, as rubber prices are low and sales continue to grow.

 

 

 

Production

Consumption

Import

Export

Stock at the end

Feb 2017

62,000

87,500

15,690

6,212

280,000

Feb 2018(p)

52,000

93,000

43,665

33

288,000

April 16 to Feb 17

636,000

948,075

400,893

16,063

 

April 17 to Feb 18(p)

(% Growth)

649,000

(2.0)

1003,060

(5.8)

418,944

5,053

 

PERFORMANCE OF NATURAL RUBBER

(Tonnes)

 

    

       p: provisional. 

 

                           Production of NR during February 2018 decreased by 16.1% to 52,000 tonnes compared to 62,000 tonnes during February 2017.    Consumption of NR during February 2018 increased by 6.3% to 93,000 tonnes compared to 87,500 tonnes during February 2017.   

 

  Rubber output dips 16% in Feb, tyre industry urges for relaxed import curbs

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The tyre industry said a lean production period had already started, to last till September. This will add to the industry’s problems

Rubber output dips 16% in Feb, tyre industry urges for relaxed import curbs

Natural rubber (NR) production in India dropped 16 per cent in February. The tyre industry, which consumes nearly 70 per cent of the produce, has urged the government to relax import curbs.

Rubber Board data shows NR production in February at 52,000 tonnes, as against 62,000 tonnes in 2017. NR consumption in India crossed a million tonnes (1,003,060 tonnes) in the first 11 months of 2017-18, a first. Production was 640,000 tonnes in the period, leaving a consumption gap of 360,000 tonnes.

The tyre industry said a lean production period had already started, to last till September. This will add to the industry’s problems.

 .
 

Rubber Board officials were not available for comment.

The industry has put in significant production capacities to meet growing demand from the automobile industry and the transportation and mining sectors. “However, production planning is undermined as domestic availability of NR is in short supply. As much as 35 per cent of the requirement needs to be imported,” said Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association.

Domestic availability is in short supply despite average domestic NR prices ruling 11 per cent higher than international prices during the year. NR export has come to a halt and the entire domestic production is being taken by the industry. India levies the highest import duties on NR in the world, at close to 30 per cent, another complaint from the industry.

They want duty-free import, equivalent to the projected domestic deficit.

“The industry also wants removal of restrictions to import only at Chennai and Jawaharlal Nehru Port Terminal (Navi Mumbai),” said Budhraja.

– Business Standard

 

Rubber prices steady as demand goes down despite supply crunch

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Rubber prices steady as demand goes down despite supply crunch

Growers and traders estimate that the production could be around seven lakh tonnes, up from 6.91 lakh tonnes in 2016-17.

KOCHI : Rubber prices have stayed steady in  in the past two weeks, unlike in the international markets where the rates have fluctuated, due to subdued demand even as the supply has gone down.

The RSS-4 sheet variety used by the  has remained flat at Rs 124 per kg as the tapping season is winding to a close in the largest rubber producing state of Kerala.

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Traders said the , particularly the small scale sector, has been hit hard by the shortage of carbon black, an important raw material for the tyre and non-tyre industry.“The industry is functioning at 50 per cent capacity. Liquidity has been severely affected and we find  difficult to get payments for the supply,’’ said Ashok Khurana, vice president of the Cochin Rubber Merchants Association.

Khurana said while demand has slackened, there is short supply of rubber in the market. The tapping season usually comes to a close by the end of January. But this year intermittent rains at several places in the state helped continue tapping, albeit at a low level.

Traders said that the tapping could have been more intense if the prices had improved. “Most growers are not interested in tapping at such a price,’’ said Biju John, a rubber dealer based in .

Rising yen and a fall in crude  had led to a fall in global rubber prices in the past few days. With international block rubber prices around Rs 30 below the current Indian rubber prices, the tyre industry has been depending largely on imports to meet its requirement despite the recent 10% hike in import duty. The industry was buying a portion of its requirement from the domestic market too, but the shortage of carbon black has made it go slow on purchases. “The low prices would severely affect production,’’ said John.

The Rubber Board had forecast that natural rubber output would touch eight lakh tonnes this year. However, growers and traders estimate that the production could be around seven lakh tonnes, up from 6.91 lakh tonnes in 2016-17.

  • India Times

 

The non-tyre small and medium rubber companies in India are in deep crisis owing to shortage of carbon black, one of the key raw materials. The All-India Rubber Industries Association (AIRIA) has urged the Indian government to remove anti-dumping duty on imports saying around 1,000 small and medium rubber units are facing closure, News Agency PTI has reported. The industry estimates a loss of around Rs 7.5 billion every month and a job loss of nearly two lakh due to the crisis.

“Carbon black imports from China, Russia and other countries face anti-dumping duties. Due to this, small & medium rubber units are facing a shortage