May 05, 2008	Monday	Rabi-us-Sani 28, 1429

INDIAN tyre makers, like steel producers, are facing charges of cartelisation and jacking up prices sharply, stoking inflation. With rubber prices continuing to rule at record highs, tyre makers are facing a major crisis, and are being forced to raise the price of their products.

The Monopolies and Restrictive Trade Practices Commission (MRTPC) recently issued notices to half a dozen top tyre makers, accusing them of indulging in anti-competitive behaviour. The industry has also been warned that government agencies might resort to large-scale imports of Chinese tyres to curb the increase in domestic prices.

Leading tyre makers including JK Tyres, CEAT and MRF have recently raised the price of their products by two to five per cent; the industry has also warned that more such hikes are inevitable over the coming weeks.

The tyre industry has justified the price hikes in view of the spurt in the price of rubber, which has jumped by nearly 25 per cent during the first four months of the year. Natural rubber accounts for 40 per cent of the raw materials for the tyre industry, though it adds up to 60 per cent of the cost of a tyre.

Rubber prices in India – the world’s fourth largest rubber producer – have been rising following a sharp decline in production; as against a projected output of 875,00 tonnes in fiscal 2007-08, actual production was down at 825,000 tonnes.

Natural rubber prices recently went up by Rs10 a kg to Rs118 at Kottayam in Kerala, as demand for the commodity expands in line with the sharp escalation in the price of oil, triggering off a shift in demand from synthetic rubber.

Stiff import duties have also prevented large-scale import of rubber from Thailand, Malaysia and Indonesia, the three top producers of rubber. Tapping has also been affected in all the leading rubber-producing nations because of untimely rains. Thai rubber prices have soared to $2.9 (almost Rs120) and there are fears it could touch Rs125 over the next few weeks, as demand from India and China expands phenomenally.

Petroleum derivatives that go into the making of synthetic rubber account for the rest of the tyre inputs, and with oil prices soaring in recent months, they have also impacted tyre makers. Other input costs have also witnessed sharp spurts – chemicals, carbon black and butyl rubber prices have gone up by 10 to 35 per cent.

According to tyre industry sources, overall raw material costs have jumped by nearly 15 per cent in 2008. Tyre prices were initially raised by about two per cent in February, but they were rolled back following a cut in excise duties later that month. Many tyre producers resorted to an increase in prices in April.

They have also warned of another escalation over the next few weeks. According to Paras Chowdhary, managing director, CEAT, if rubber prices don’t stabilise, the industry will be left with no option but to increase prices further.

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FEAR of large-scale imports from China is holding back many of the Indian tyre makers from going in for an even steeper increase in prices. State-owned giant Minerals and Metals Trading Corporation (MMTC) is toying with the idea of importing truck and bus tyres from China, partly to help other state-owned companies with huge requirements.

About 150,000 tyres are imported every month by nearly three-dozen small importers; huge demand for tyres has seen a massive rise in imports. About four years ago, India imported just about 10,000 tyres a month, but this has gone up by about 15 times since then.

And if MMTC enters the field, it could result in an additional 100,000 tyres being imported every month.

The domestic industry for commercial vehicle tyres is still dominated by non-radial products; in fact, radials account for less than five per cent of tyres for buses and trucks. Most of the Chinese imports consequently are of radial tyres.

Indian tyre makers, however, compete with Chinese counterparts in the international markets in the non-radial segment. According to the Automotive Tyre Manufacturers’ Association (ATMA), bus and truck tyre exports topped two million – growing by nearly nine per cent – during the first three-quarters of fiscal 2007-08.

Exports grew despite the spurt in raw material prices and the strengthening Indian rupee. Indian companies like CEAT export bus tyres to over a hundred countries. Most of the tyres use premium quality nylon and older technology, but demand for it – especially in the Middle East and African markets – is huge. India and China are the only two countries offering bus and truck tyres in bulk quantities.

The domestic trucking industry in India is, however, offering stiff resistance to the frequent price hikes. So too are the tyre dealers, who are unhappy with the price revisions. S.P. Singh, convenor, All India Tyre Dealers’ Federation, accuses tyre producers of arbitrarily raising prices, but failing to reduce them when input costs are slashed.

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BUT despite the current crisis, Indian tyre makers are unveiling ambitious expansion plans. All the leading players have decided to invest in new plants, to upgrade existing facilities and enhance capacities. According to the ATMA, eight tyre manufacturers plan to invest about Rs60 billion over the coming months in setting up new plants or enhancing capacities.

India’s automobile sector is booming, as demand for both passenger cars and commercial vehicles soar. JK Tyres, the third largest tyre maker, plans to invest Rs11.8 billion over the next three years. “We are witnessing tremendous growth in demand for radials in trucks and buses and off-the-road tyres,” says Arun Bajoria, president, JK Tyres.

CEAT Tyres, the fourth largest tyre producer, recently announced plans to invest Rs9 billion in two greenfield facilities. One plant will be a dedicated radial truck and car tyre facility, while the other one will make speciality tyres and tyres for off-the-road vehicles.

According to Paras Chowdhary, managing director, CEAT, “in the current fiscal we are likely to report the highest-ever profit. Our challenge is that every global tyre player is entering the $4 billion Indian tyre market. Radial tyres, which account for 13 per cent of the market now, will dictate the future.”

The company plans to rope in an international partner for sourcing better technology for the new generation of tyres. “Radial technology is the future,” says Chowdhary. “We are looking at a foreign partner for technology tie-up. In the next two-three months, we should have a partner.”

MRF is investing about Rs8 billion to raise capacities. The company plans to manufacture tyres for aircraft, including helicopters.

Apollo Tyres is also planning to expand its production facilities. The world’s largest tyre maker, Bridgestone, has decided to set up a radial tyre plant for buses and trucks.

Indian tyre makers are also seeking an aggressive expansion overseas. JK Tyres recently acquired Tornel, a Mexican tyre company, for Rs2.7 billion. Tornel has three plants and a capacity of 6.6 million tyres per annum.

Apollo Tyres has unveiled plans to set up a $310 million greenfield facility in Hungary. The new facility will service the burgeoning European market, where total demand for passenger car tyres is around 300 million every year.

Indeed, Indian tyre makers are going to expand their share globally, even as they take on competitors from China in their domestic turf.