India-rubber-tree

From car tyres to humble rubber-bands used for domestic purposes, rubber is an essential resource in today’s world. Natural rubber is obtained from the Hevea Brasiliensis tree, more commonly known as the rubber tree. Rubber trees though found in many parts of the world, grow best in the South Asian humid climate. Countries such as Thailand, Vietnam, India, Sri Lanka, Singapore to name a few, are some of the largest producers of natural rubber and meet more than 90 percent of the world's rubber requirements.

The price of natural rubber has witnessed a tremendous hike in recent years and is now almost three times the price it used to be per kilo. Lower supplies due to bad crops have led to this, and with little expectations of the supply of natural rubber increasing in the near future, rubber prices are slated to remain high. Regional currencies that have grown stronger against the US Dollar have also contributed to the increase in prices of natural rubber.

The hike in rubber prices affects all industries dependent on it and in particular the tyre industry. The cost of natural rubber accounts for nearly 40 percent of the cost of a tyre. A hike in rubber prices naturally cuts deep into the profits of tyre companies. While all companies aim to keep their costs competitive, most have passed on the additional burden to the buyers. Almost all tyre companies in India have been forced to increase the cost of their tyres with some such as Michelin having to revise their prices twice in two months.

The Indian tyre industry is expected to grow with the large scale development of infrastructure in India. Some of the world's leading tyre manufacturers such as Michelin, Bridgestone and Continental have set up manufacturing plants on Indian soil in order to maximize their profits and capture the Indian tyre industry. Tyre companies, both Indian and foreign, have invested Crores of rupees to set up new factories or revamp existing ones to gear up for the demands of the automobile and tyre markets. In the wake of high rubber prices, tyre companies face an additional pressure on the profit margins due to increased debt and higher interest rates.  

Low cost tyre imports from China compound the worries of Indian tyre manufacturers as they stand to lose a substantial share of the market. The Government of India provided some respite to tyre companies by allowing subsidies on 40,000 tonnes of natural rubber import. While the Government is trying to protect the interest of the domestic rubber industry, the onus lies with tyre manufacturers to restructure their modus operandi in order to sustain the profit margins.     

The demand for tyres in India, especially for radial tyres for commercial vehicles is set to increase regardless of higher natural rubber prices. It is up to the tyre manufacturing companies in India to manage the cost pressures imposed and be able to competitively price their products after passing on the increased input costs to the customer in order to sustain margins and retain profitability.