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RUBBER STAKEHOLDER NEWS : New Delhi must stay out of RCEP to protect its industry, agriculture: Forum for Trade Justice
(Last Updated: 17 Oct 2019)

 

 

New Delhi must stay out of RCEP to protect its industry, agriculture: Forum for Trade Justice

The Regional Comprehensive Economic Partnership (RCEP) pact which India is negotiating with 15 others, including the 10-member ASEAN and China, will not only hit industrial sectors and agriculture the most because of tariff elimination but may also force the country to give up its policy space in determining e-commerce and investment rules, the Forum for Trade Justice has cautioned. The forum includes academicians, economists, farmer bodies and labour representatives.

“What is worrying is that the talks have gone so far in such detail without any meaningful involvement of the real stakeholders who will face the real consequences. There has been only some selective consultations with certain industrial sectors and government departments,” pointed out Shalini Bhutani, legal researcher and trade analyst.

The 16 RCEP countries, which also include Japan, South Korea, Australia and New Zealand, have a deadline of October 22 to finalise the talks so that an announcement of its conclusion can be made at the RCEP Leaders’ Summit in Bangkok on November 4. Once concluded, the RCEP could be the largest trade bloc in the world accounting for 39 per cent of global GDP and 30 per cent of global trade.

 

Auto-trigger mechanism

At the RCEP Ministerial meeting last week, Commerce & Industry Minister Piyush Goyal sought adequate safeguards in terms of stringent Rules of Origin (ROO) and a workable auto-trigger mechanism for imposing additional import duties to check import surges, especially from China. Both Indian industry and agriculture are terrified of increased competition from China which has a trade surplus of over $50 billion with India.

“The drastic reduction in import duty and flooding of cheap agricultural produce will negatively impact farmgate prices in India. Indian farmers will loose everything if India signs RCEP,” warned Yudhvir Singh, Coordinator, All India Coordination Committee of Farmers Movements.

Tariff differential

Ranja Sengupta of the Third World Network pointed out that “tariff differential with China that India is working out to give its industry and agriculture greater protection will be meaningless as China can use the ROO which allow any product with some value creation in the RCEP region to enter the Indian markets duty-free (through cumulation). “China has already been circumventing ROO and will now find an easier route even for products not opened up to China under RCEP,” she said. Sengupta added that despite India trying to ensure that China be excluded from cumulation in the ROO rules, other members were not agreeing.

Similarly, the auto-trigger mechanism, too, may not be able to protect Indian industry and agriculture from import surges, said Biswajit Dhar from the Jawaharlal Nehru University. Dhar said not only were RCEP members not agreeing to extending auto-trigger to a substantial number of items, there was also no clarity yet on the threshold limit for the trigger. “Determining threshold level for triggering higher import duties is very important as WTO negotiations on safeguarding agriculture products collapsed around it,” he said.

‘Moving backward’

The investment chapters in the RCEP are also highly ambitious and go much beyond India’s model Bilateral Investment Treaty (BIT) text and the WTO’s TRIMS Agreement, said Kavaljit Singh of Madhyam. “Rather than moving forward, India is moving backward on its policy over investment agreements,” he said.

 
Published on October 16, 2019
 
 

Planters too get the RCEP jitters

Vishwanath Kulkarni  Coonoor | Updated on September 16, 2019  Published on September 16, 2019

 

Want govt to exclude plantation crops from proposed trade pact

The crisis ridden plantation sector that’s battling challenges such as weak prices, rising costs amidst oversupply and an erratic weather pattern, is seeing a new threat in the proposed Regional Comprehensive Economic Partnership (RCEP) agreement.

With China being a part of the proposed new trade agreement, the growers of plantation commodities are getting jittery.

“RCEP will be a new threat for the plantation industry that’s currently fighting many challenges. We urge the government to keep all the plantation crops under the exclusion list from the proposed RCEP agreement,” said ALRM Nagappan, President, UPASI.

An UPASI analysis reveals that India, during 2018-19, had an overall trade surplus of 4,368 crore with exports of plantation commodities such as tea, coffee and spices among others. However, with respect to the RCEP countries, India faces a trade deficit of 5,716 crore in plantation commodities.

“This indicates that plantation commodities will be losing significantly if the RCEP agreement materialises. We fear that further reduction in tariff proposed can only worsen the trade deficit in the plantation commodities once the market is opened up under RCEP as most of the ASEAN countries are producers of plantation crops itself. Such a development will make things worse for the sector, which is already facing challenging times on account of low prices vis-a-vis high cost of production,” Nagappan said.

India’s plantation sector is already facing the brunt of the international trade agreements that has resulted in cheaper imports. Commodities such as tea, coffee, natural rubber, cardamom and pepper have been exposed to international competition since April 2001, when the qualitative restrictions were lifted as per the commitments under WTO.

The signing of the ASEAN agreement in 2009 has further opened up the Indian market to countries such as Indonesia, Vietnam, Thailand and Malaysia that produce plantation commodities.

Under the ASEAN agreement, the import duties were gradually reduced since 2009 for tea, coffee and pepper, while natural rubber, cardamom and few tariff lines on coffee were kept under the exclusion list.

Currently, the tariff on imports of tea and coffee from ASEAN countries attracts a duty of 50 per cent, while for pepper it is 51 per cent. Also the import tariff for coffee and pepper under the WTO is 100 per cent and 70 per cent respectively.

India’s plantation exports stood at 12,361 crore in 2018-19, with coffee shipments accounting for 5,905 crore, followed by tea at 5,335 crore and pepper at 821 crore. Cardamom and rubber exports stood at 242 crore and 57 crore respectively.

 
Published on September 16, 2019

 

Harrisons Malayalam seeks govt help to rebuild infra

Our Bureau  Kochi | Updated on August 26, 2019  Published on August 26, 

 The plantations major Harrisons Malayalam Ltd has voiced concern over the frequent natural calamities and said could ring the death knell for the industry in South India.

“We were badly hit by Cyclone Okhi in 2017, causing damage of 3.5 crore to our rubber estates. Similarly, our capital and infrastructure losses in the last two years to floods and landslides in the tea fields is estimated at 11 crore. In view of the continued losses in operations, it will be difficult for us to rebuild the infrastructure and carry out the replanting of the damaged areas without government support,” said Cherian M George, Chief Executive and Director, HML.

The challenges posed by the natural calamities, change in weather patterns and rising temperature levels are serious threats to the plantation business. Post-economic liberalisation, plantation crops in India are exposed to severe global competition.

India, particularly Kerala, is a high-cost producer of plantation crops. Hence tea, rubber, coffee and cardamom are not able to cover the cost of production and are unable to compete with other countries who are able to produce these crops at a much lower cost.

“Now we are faced with yet another challenge of natural calamities and change in weather pattern,” he said.

Considering the landscape of Kerala, the company has suggested formation of a Ministry for Environment, Health & Sustainability to coordinate activities in forest, agriculture, urban development, industries, housing, revenue etc. A detailed study is essential on sustainable practices followed in other ecologically fragile countries.

The government should also frame a plantation policy, enlarging the scope of plantation crops and encouraging cultivation of perennial crops. HML grows tea and rubber as main crops and engage around 11,000 employees, he added.

Rubber growers seek fair price

The Consortium of Indian Rubber Growers Organisation (CIRGO) has demanded fixing of a fair price for natural rubber to ensure better price realisation.

The fair price should be fixed at 258 a kg, considering the cost of production at 172 and 50 per cent of the COP as suggested by the MS Swaminathan Committee, said George Joseph, Convenor, CIRGO. With natural rubber prices ruling lower than the production cost, the majority of rubber farmers are in deep crisis and the emerging situation has made rubber farming non-viable.

Current prices

Natural rubber prices are now hovering in the range of 138 a kg and the lower price has forced many farmers either to stop tapping or abandon cultivation, leading to a huge drop in domestic production, he said. Johny Mathew, Coordinator, CIRGO, urged the government to restrict rubber imports from the South East Asian nations. Though the government has imposed port restrictions initially, it needs to be re-looked. The authorities should ensure proper infrastructure measures and staffing to curb imports.

According to Santhosh Kumar, joint coordinator, CIRGO, rubber has been classified as an industrial crop and it does not enjoy any protective measures extended to agricultural crops. The only way is to either renegotiate with WTO to bring back rubber to the basket of agricultural crops or impose safeguard duty to protect the livelihood of around 13 lakh growers.

He pointed out that rubber latex is already treated as an agricultural crop and hence all the facilities that an agricultural crop attracts should be made available to rubber growers since the primary produce from rubber tree is latex, scrap rubber and sheet rubber.

High input costs

Rubber being a long gestation crop, it requires huge investments by the grower for seven years before it starts yielding. To sustain the livelihood of growers for a further yielding period of 20-plus years, a fair price and a buyback scheme should be made available along with replanting subsidies provided by the Rubber Board, he added.

 
Published on July 19, 2019

 

By Sharad P Matade

With stable demand outlook and strong credit profile, the domestic tyre makers are expected to make significant investments in capacity addition in the coming years.

With a stable growth in original equipment (OE) and a sharp recovery in demand for replacement tyres, the Indian tyre market is estimated to have grown by 9-11% unit volume-wise and 11-13% tonnage-wise domestically in the financial year 2018-19, according to the credit rating agency ICRA.

The OE tyre segment witnessed a strong demand with a 10-12% growth in FY2018-19, as against a 13.3% growth in 2017-18, despite subdued vehicle production levels in the last six months due to ‘dip in consumer sentiments’ on the back of rise in vehicle costs and softened rural demand, ICRA says.

In the OE tyre segment, passenger vehicle manufacturers faced a tough time in FY 2018-19 when passenger vehicle sales had a mere 2.7% growth,replika órák the slowest in last four years, according to the data released by the Society of Indian Automobile Manufacturers (SIAM).

The commercial vehicles sales surged over 17% and two-wheeler sales increased by 4.85% which helped to the auto industry register 5.15% growth across all segments in FY2018-19 over the previous year.
However, SIAM maintains that in FY 2019-20, auto manufacturers will continue to have challenges on account of general elections, transition of BSVI norms and the implementation of new safety norms.

Surge in replacement market

The replacement tyre demand in 2018-19 was also higher than the previous year. According to ICRA, pick-up in infrastructure activities and rising consumption boosted the demand for replacement tyres which is estimated to have increased by 7-9% in terms of unit volume in 2018-19 as against a muted growth in FY2017-18.
However, the demand for replacement tyres slowed since November 2018 due to tight liquidity conditions, but a strong H1 has neutralised the impact.

According to ATMA, tyre production in India had a double-digit growth in H1 2018-19 (see Figures 1-3). Total tyre production in H1 FY2018-19 increased 11% over the same period of corresponding fiscal. Among categories, two and three wheeler tyre production surged 20%, while medium & heavy commercial vehicle and light commercial vehicle segments surged 24% which helped to boost the overall production.

According to ATMA, the Indian tyre industry had posted a growth of 7.5% in FY 2017-18 and an overall growth at a CGRA of 3.6% during the last six financial years ( FY13-FY18).

Boost for tyre exports

According to ICRA, tyre exports have increased at a CAGR of 12% during FY2016-18 aided by favourable demand in overseas markets and increased acceptance of the Indian tyres (especially radials). For FY 2018-19, tyre exports are estimated to have crossed Rs 120 billion, with USA and Germany, the top two markets, accounting for over 20% of total exports.

However, in number terms, overall tyre exports went up by 2% during the first half of FY2019 as against the first half of FY18. Import of cheap tyres, especially truck and bus tyres from China, had been a big headache for the Indian tyre producers, and the unprecedented imports had heavily impacted domestic tyre producers’ business.
However, imports from China declined in the last two years. Truck & Bus tyre imports went down due to the reimposition of the anti-dumping duty and Custom duty on truck & bus radial tyres in FY 2017-18. The Government of India had also announced an increase in the Custom duty on import of radial car tyres to 15% from the earlier 10%.

Raw material prices soften

ICRA says that the raw material prices increased by 3% and 11% during Q2 and Q3 FY2019 respectively, with spike in crude linked input prices. However, with oil prices crashing in November 2018, prices of these inputs have declined in recent months. Price of natural rubber (over 30% of input costs) continued to be low over the past two years, with prices falling by 4% during FY2019.

Commenting on the company’s performance in the third quarter of FY2019, Apollo Tyres Chairman Onkar S Kanwar says: “While our volumes have increased across segments and geographies, the margins were impacted due to the lag effect of the increase in raw material prices, especially crude-based ones, in the previous quarters. Comparatively, this quarter looks better, as the raw material prices have eased to some extent. In the current quarter, we are already witnessing an uptick in demand, and are hopeful of reporting a healthy growth.”

On the supply side, the tyre industry has been facing several challenges. Domestic production of natural rubber meets hardly 54% demand, while the rest is met through imports.

“Tyre industry is raw material-intensive and NR is a critical raw material. Acute shortage of NR has been hitting the industry where it hurts the most. Production planning is in serious disarray in view of volatility in availability of NR in the country,” says K M Mammen, Chairman & Managing Director of MRF Ltd, who was recently elected as Chairman of ATMA.

Bright outlook

The Indian tyre market is always dominated by a handful of domestic tyre manufacturers. The top seven tyre companies are expected to have around 80% of the industry revenues, according to ICRA.
As usual, the replacement market continues to have a bigger demand of around 65% in tonnage and 55% in unit terms against the OEMs segment, and the truck and bus replacements share is much higher at 80%.
The tyre industry revenues grew by a strong 16% YoY during 9M FY2019, aided by volume growth across OE, replacements and exports apart from improved realization with price hikes taken in key product segments. Growing volume in both OE and replacement and rising exports are likely to boost revenues of the industry, ICRA says.

On the margin front, operating and net margins stood at 13.3% (up 60 bps YoY) and 6.2% (up 15 bps YoY) respectively during 9M FY2019. Elevated prices of crude linked inputs had restricted margin expansion amid strong revenue growth. However, with oil prices cooling off in recent months, profit margins in Q4 FY2019 and Q1 FY2020 are expected to be strong although some rollbacks on the earlier price hikes had taken place in Q4 FY2019.
“For FY 2019, the tyre industry revenue growth is pegged at 14-15% with operating and net margins of about 14% and 7% respectively, almost in line with last year. For FY 2020-22, revenue growth is projected at 9-10% with operating and net margins at 14-15% and 6-7% respectively,” says K Srikumar, Vice President and Co-Head, Corporate Ratings, ICRA.

“ICRA expects the domestic tyre demand to grow by 7-9% over the next five years (FY2019-23). With stable demand outlook and strong credit profile, domestic tyre makers will continue to invest in capacities. Based on announcements, the industry is likely to witness a capacity addition of over Rs 200 billion in the next three years,” Srikumar adds.

 

 

Kerala rubber growers form producer firm to make tyres

By:  | 
Kochi | Published: June 25, 2019 1:06:27 AM

Rubber growers in Kerala have got together to form a producer company ‘Integrated Rubber Farmer Producer Company’ (IRFPC) to manufacture tyres.

Rubber growers in Kerala have got together to form a producer company ‘Integrated Rubber Farmer Producer Company’ (IRFPC) to manufacture tyres.

Andreas Hermes Academe (AHA), an NGO based in Germany, will assist the producer company to formulate a strategy towards formation of a professional collective to produce value-added products under the ‘Farmer Producer Company’ (FPC) model, Ajith John, technical and financial expert of the group, said in a communication.

Natural Rubber (NR) prices dropped significantly after 2012 and soon hit levels below cost of production, making rubber farming uneconomical and not remunerative.

“The idea for this concept took root during this period when the realisation dawned that there is no salvation for the growers unless they move up the value chain. We have some successful examples of farmer-led cooperatives like AMUL, among others, which became big brands owned and managed by farmers. Recognising the various issues, the Union government had come up with the concept of FPC in 2002 and subsequently the amendments to the Act in 2013 gave further impetus. These companies, managed and run by farmers themselves, were conceived to be run like companies on the lines of the Companies Act with a professional management towards realising the objectives,” John added.

The communication said the FPC will start off with two and three-wheeler tyre production with an approximate initial investment of Rs 100 crore.

It was felt that unless the FPC is able to produce tyres of its own, it will not be able to deliver the right value to the growers for the produce bought from them or efforts put in by them, John said, adding that FPC decided on two and three-wheeler tyre as the initial step because the category forms 51% of all tyres produced and is seen growing at the rate of 12-13% while the industry is witnessing 5-6% growth.

IRFPC sources said the company has started mobilising capital for its tyre project from rubber growers across the country as shares. Face value of the share is Rs 10 and any rubber farmer who owns shares worth Rs 10,000, could be a member, but for becoming an active member with voting right he needs to possess shares for a value of `1,00,000. However, there is provision to form Farmer Interest Groups (FIG) by forming a group of farmers having 1,000 shares and nominating one of them to cast vote.

The company is now planning to procure a new fully equipped two and three wheeler tyre factory, at one of the industrial estates near Erode in Tamil Nadu, which is under auction.

 

 

 

Indian tyre stocks post negative growth on fall in auto sales

Despite the buoyancy created by the return of Narendra Modi government with a clear majority, the stocks of tyre companies suffered losses in the period of April 15, 2019 to June 10, 2019, thanks to falling profits, drop in automotive vehicles sales, trade war tensions etc.

Following trends on the bourses, the stocks of Apollo Tyres, during the period of April 15, 2019 to June 10, 2019, fell till the middle of May and then picked up in the rest of the period. For the 2018-19 financial year, the company’s net sales increased 18% to close at Rs 172.73 billion from Rs 146.74 billion a year ago. Net profit stood at Rs 6.80 billion for the fiscal.

The company had written off Rs 2 billion on account of IL&FS in FY 2019. However, the rise in the stock price in the second half of the period of April 15, 2019 to June 10, 2019, did not mitigate the losses in the first half of the period. Stocks of Apollo Tyres reported a loss of over 11% in the period.

MRF’s stocks plunged till the end of April before climbing up. The Chennai-headquartered company’s stocks picked up momentum after mid-May. Meanwhile, MRF reported net sales of Rs 40.73 billion in the January-March 2019 quarter, an increase of 5.38% from Rs. 38.65 billion in the same period last year.

However, MRF’s net profit fell 14.91% to Rs. 2.94 billion in the January-March quarter of 2019 from Rs 3.45 billion in the same quarter of 2018. At the end of the period, MRF’s stocks reported a fall of 4.32%.

Stocks of Balkrishna Industries Ltd (BKT) had a steady fall till the mid of May. The company’s stocks moved up on the election results, however, the momentum did not continue and the company’s stocks once again fell at the end of the period. During the period of April 15, 2019 to June 10, 2019, BKT’s stocks had over 18% drop.

Stocks of JK Tyre & Industries Ltd reported over 14 % decline in the period. For the fiscal ended March 31, 2019, JK Tyre’s net profit jumped to Rs 1.71 billion from Rs 633.2 million in the previous year. Consolidated revenue for 2018-19 was at Rs 103.70 billion, up from Rs 83.97 billion in 2017-18.

After having a fall in the first half of the period, stocks of CEAT had a marginal increase in the rest of the period. CEAT witnessed over 14% fall in the period of April 15, 2019 to June 10, 2019. CEAT, for FY 2018-19, reported an increase of 5.98% in its net profit to Rs 2.52 billion from Rs 2.38 billion in the last fiscal.

The total consolidated revenue of the company stood at Rs 69.85 billion in FY19 as compared to Rs 62.83 billion in FY18, registering a growth of 11.2 %.

Stocks of other tyre makers Goodyear India, PTL Enterprises and Modi Rubber also fell 1%, 2.75% and 5.03% respectively during the period of April 15, 2019 to June 10, 2019.

 

 

NR production in India meets just 53% of demand: K M Mammen

 Acute shortage of NR has been hitting the Indian tyre industry where it hurts the most. Production planning is in serious disarray due to volatility in availability of NR in the country, says K M Mammen, Chairman & Managing Director of MRF Ltd, who was recently elected as the new Chairman of Automotive Tyre Manufacturers Association (ATMA).

In an interview to Rubber Asia, he points out that domestic production of NR matches just about 53% of the domestic demand and for the remaining 47%, the industry has no other option but to take recourse to imports.
Imports are in direct proportion to the domestic shortage. As the gap between demand-supply has widened from 417,000 MT in FY 17-18 to nearly 570,000 MT in the last fiscal, more imports have been contracted to bridge the gap. Since domestic NR availability can fulfil less than 55% of the demand, the remaining quantity of NR has to be imported, Mammen says.
Even imports have become tough for the industry in view of punitive taxation, port restrictions on import of NR, slashing of export obligation period for tyres from 18 months to only 6 months etc, Mammen adds.

 

Natural rubber/silica technology could lower truck tire rolling resistance

HANOVER, Germany —  reinforcements producer Evonik Industries A.G. has developed a silica/silane technology for use in natural  compounds it claims could help reduce rolling resistance in medium truck and bus tires.

Evonik claims testing shows using its silica/silane technology could yield fuel savings of as much as 8 percent versus traditional carbon-black reinforced NR compounds while also reducing braking distances, leading to greater driving safety on wet or snow-covered roads.

Silica’s effect on rolling resistance in passenger tires is well documented, Evonik noted, when used in compounding with . It’s claiming the use of its Ultrasil 91000 GR prec