Tyre industry growth in India hampered by hike in fuel prices, dumping by Chinese cos

India's tyre production is likely to go up by about 10% this fiscal, which is slightly below the 12-13% growth anticipated by ATMA. Fuel price hikes, high costs of rubber and dumping by Chinese tyre companies have worked against Indian tyre companies, which may have done better in the absence of those negative factors.

It’s expected that Indian tyre companies will continue to remain under pressure in the short-term, due to high rubber prices and cheap imports from China. Also, given the hike in fuel prices in the country, ATMA expects people to postpone the purchase of new vehicles and also a cut down in private vehicle usage – and both these factors will adversely affect the demand for tyres.

According to ATMA data, in the financial year ending 31st March 2008, India's tyre production stood at 81.1 million tyres, ATMA data showed. Two-wheeler tyres make up almost half of the market in terms of number of units produced, while in terms of tonnage, truck and bus tyres dominate the market.

ATMA demands for anti-dumping duty to be imposed on Chinese tyres

Tyre imports from China in the Indian market have gone up by 1,300 percent over the last five years, and understandably, the Automotive Tyre Manufacturers Association (ATMA) isn’t very happy about that. In fact, ATMA is asking the Indian government to impose an anti-dumping duty on import of Chinese radial tyres for trucks and buses.

Truck and bus tyre imports from China went up from 88,000 units in 2003-04 to 12.17 lakh units in 2007-08. ‘These tyres, imported mostly from China, are being sold at the retail level at a price almost 30 percent cheaper than Indian tyres,’ says Rajiv Budhraja, Director General, ATMA. He added that independent importers and grey market operators are under invoicing the imported tyres and selling at the retail level on cash basis, without paying VAT.

‘The sale of these unaccounted-for imported tyres is costing the exchequer Rs 60-80 crore per month. The customer is also a loser as these tyres are being sold without any warranty,’ said Budhraja. From an almost insignificant percentage five years ago, imported tyres – mostly from China – have come to account for 14 percent of the 86.47 lakh units replacement truck and bus tyre segment in India.

Chinese tyres being dumped in India despite duty

With up to 30% price advantage, Chinese-made tyres are taking over the commercial vehicles replacement tyre market in India

The import of commercial vehicles tyres in India has gone up in the last five years, and today, Chinese tyres constitute more than 90 percent of all tyres brought into the country. Anti-dumping rules, regarding the import of commercial vehicle tyres in India, were passed in July last year, but that seems to have made little difference as Indian tyres continue to be up to 30 percent more expensive than their Chinese competition.

According to ATMA, most of the competition between Indian and Chinese tyres is in the replacement market, where Chinese tyres have been successful at taking on Indian companies like Apollo, JK and MRF. The Indian commercial vehicles replacement tyre market is very price sensitive, and with their cost advantage, Chinese tyres are able to do very well here.

According to ATMA estimates, the share of Chinese tyres in the replacement market in India has risen from a mere 0.3 percent in 2002-03 to 14 percent as on 31st March 2008. Since the anti-dumping ruling was on bias-ply truck and bus tyres, Chinese companies have been clever enough to shift their focus to radial tyres, which are now being brought to India at prices much cheaper than Indian-made radials for commercial vehicles.

Last year’s ruling increased anti-dumping duty from US$75 to US$135, but even that has not been enough to stem the tide. It’s now being suggested that the duty be increased to US$170 to help the domestic tyre industry.

ATMA seeks rubber cess waiver or reduction

In counter rising prices of natural rubber, the Automotive Tyre Manufacturers Association (ATMA) has requested that the government should waive or reduce cess on rubber, which would help ease the financial burden on tyre companies in India.

ATMA also suggested that the government should allow manufacturers to take full CENVAT on the total cess amount paid, against R&D expenses. ‘In view of the high prices of natural rubber during the last few years, charging of cess only adds to the input costs for the tyre sector,’ said Raghupati Singhania, who heads JK Tyre and who’s also the chairperson at ATMA.

Rubber prices have risen by 33.64 percent over the last one year. Current prices stand at Rs 120 per kilo, against Rs 89.79 per kilo a year ago. Plus, a cess of Rs 1.50 per kilo is also paid by tyre manufacturing companies. No wonder then that according to ATMA, rubber accounts for up to 42 percent of raw material cost of the tyre industry.

‘At such high prices, there is no justification for natural rubber growing interests to be supported by any cess. An increase of Rs 1 per kg on rubber adds to an incremental burden of Rs 49 crore on the tyre sector, taking into account the natural rubber consumption of 4.91 lakh tons by the sector,’ said Singhania.

According to Rubber Board data, of India’s total rubber consumption of 8.6 lakh tons in 2007-08, the tyre sector accounted for about 4.9 lakh tons.