Tyre makers foresee strained margins despite duty cut

Tyre companies have welcomed the government’s decision to cut import duty on natural rubber from 20% to 7.5% but see no letup in the pressure on profitability for now.

“It’s a positive step from the government. However, we are still concerned over the alarming prices of natural rubber, which are at historic highs,” said Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association (Atma).

Tyre manufacturers have been protesting the inverted duty pyramid, where natural rubber was imported at 20% while finished product (tyre) attracted 10% import duty.

This was creating an imbalance in demand structure. The manufactures are currently utilising the entire domestic production of natural rubber. The country imports around 150,000 tonne of natural rubber, constituting 15% of its overall natural rubber consumption.

“We are still evaluating the impact of the decision, but we are happy that the government understood difficulties of rubber industry. However, we are not sure if it will help in better margins,” A S Mehta, marketing director of JK Tyres said.

Natural rubber is currently trading at Rs207-208 per kg in the country, while internationally, the prices have shot up to Rs220-225 per kg due to the uncertain weather conditions. Major imports are from Indonesia and Thailand.

“This was a long pending decision, which all the manufacturers were waiting for. It will definitely ease the pressure on domestic supply,” said Ajay Sevekari, director, Bridgestone. “Pressure on margins is expected to continue as there is no respite on natural rubber prices.”

As per a ministry of finance notification, goods up to an aggregate 40,000 metric tonne of total imports in the remaining part of the current financial year will attract duty of 7.5%.

In May this year, tyre manufacturers had to move Delhi High Court calling attention to the inverted duty on natural rubber. In November, the Delhi high court directed the government to respond within four weeks.