Tyre News has been closely monitoring the unprecedented rise in raw material costs, particularly natural rubber, which touched a 13-year high in June 2024. This surge has led major tyre manufacturers like CEAT and JK Tyres to increase their prices in an effort to offset the rising expenses.
Industry experts anticipate that raw material prices will rise by another 5-6 per cent in the next quarter, though there is hope for stabilisation or even a softening by the third quarter. Despite this, the current upward trend is expected to persist, potentially leading to further price adjustments in the tyre market.
CEAT’s Strategic Response
In response to the soaring costs, Kumar Subbiah, Chief Financial Officer (CFO) of CEAT, revealed the company’s plan to hike prices for certain tyres in both the international and replacement markets. Additionally, CEAT is expanding its presence in the international market by introducing truck and bus radial tyres in the upcoming quarters, focusing on distributor appointments and tyre exports.
"Progress has been made in securing approvals within the OPM segment, necessitating a scaling up of operations in the current and subsequent quarters to offset increasing prices," stated Subbiah.
JK Tyres’ Dual Approach
JK Tyres is adopting a two-pronged strategy to manage the cost pressures. While acknowledging the upward pressure on raw material costs, the company is focusing on product mix optimisation and operational efficiencies to mitigate the impact on margins. Despite a recent decline in rubber prices from their June peak, JK Tyres has implemented price hikes to address the earlier surge.
"The average raw material prices have increased by 3-4 per cent on a quarter-on-quarter basis. The company has managed to pass on around 2 per cent of this increase to consumers," stated Sanjeev Aggarwal, CFO of JK Tyre. The price increase applies to the domestic market.
Industry Outlook
According to credit rating agency ICRA, domestic tyre volume growth is expected to be 4-6 per cent in FY25, down from an estimated 6-8 per cent in FY24. The replacement market, which contributes to over two-thirds of industry volumes, is expected to remain stable, driven by healthy demand across segments.
"Demand from original equipment manufacturers (OEMs) in certain consumer segments like passenger vehicles and two-wheelers is expected to remain stable, while the commercial vehicle segment may see a decline. Tyre exports are likely to remain sluggish amid a slower recovery in end-user markets," stated Nithya Debbadi, Assistant Vice-President and Sector Head - Corporate Ratings, ICRA.
Key components like natural rubber, synthetic rubber, carbon black, and caprolactam have seen sharp price increases since January 2024. Global natural rubber prices have surged over 30 per cent in just seven months, reaching approximately Rs 215-220 per kg, primarily driven by supply shortages due to adverse weather conditions in Southeast Asia.
Impact on Profit Margins
"India, heavily reliant on imported natural rubber, has also experienced significant price increases, with domestic natural rubber trading around Rs 214-216 per kg. The combined impact of elevated natural rubber and crude oil prices is expected to erode tyre industry profit margins by 200-300 basis points in FY25," Debbadi added.
Anurag Singh, Managing Director at Primus Partners, highlighted that tyres are composed of about 50 per cent rubber, both natural and synthetic. The recent increase in natural rubber prices, driven by reduced availability and high shipping costs, has significantly impacted tyre prices. Despite a decline in global car demand, the tyre industry has seen steady demand.
Singh anticipates that as rubber prices stabilise, tyre prices may decrease. He noted that competitive market dynamics would prevent companies from maintaining high profit margins. Manufacturers are keenly watching the market for any signs of stabilisation in raw material prices.
