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market | IST

Unavailability of local natural rubber a concern; expect prices to come down: CEAT

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The rubber industry is currently grappling with a big demand-supply mismatch. To understand how this shortage is impacting the tyre manufacturers, CNBC-TV18 spoke to Kumar Subbiah, Chief Financial Officer at CEAT. Subbiah expects the unavailability of local natural rubber to be short-term. He also expects the prices to come down to the imparity parity levels soon.

The rubber industry is currently grappling with a big demand-supply mismatch. To understand how this shortage is impacting the tyre manufacturers, CNBC-TV18 spoke to Kumar Subbiah, Chief Financial Officer at CEAT.  Subbiah believes that locally sourced rubber might be in short supply, owing to the rains in Kerala, among other reasons, as a result of which prices have risen to Rs 180 per kg. However, he is confident that such elevated prices won't last long and eventually it will have to come down to import parity levels.
On rubber availability, Subbiah said, “Approximately about 60 percent of India's requirement is locally sourced. So in the last couple of weeks or so, the availability of natural rubber from local sources has been a little difficult. One of the reasons could be because of heavy rains in Kerala and therefore, tapping was a little lower. Hence, the amount of rubber that was coming into the market was lower. Second, also, the stocks that the traders have is also on the lower side and it has happened all of a sudden, so, from the supply chain and also from the planning point of view, sheet rubber that we locally source has been a challenge for the industry.”
He added, “We had a meeting with rubber board on Thursday to find out how to ease off the situation. So we hope things would improve in the coming weeks in terms of availability of local rubber.”
The Automotive Tyre Manufacturers Association (ATMA) on Tuesday asked the government to allow free imports of natural rubber to the extent of projected demand-supply gap of 4.4 lakh tonnes.
On the projected demand-supply gap number, Subbiah said, “As of now, it is short term problem. Right now, availability is a challenge. It is not our understanding that there will be a shortage of 30-40 percent of the annual requirement, but at this point in time there is a gap to the extent of the number that you have indicated in the short-term.”
“We continue to import rubber, but it has a certain lead time and in the current situation where it takes a little longer for vessels to come from Southeast Asian markets, so this needs to be planned,” he specified.
He added, “As of now, it is not affecting our production because there is always inventory in the pipeline. But if corrective action is not taken in terms of local markets making available adequate quantities of rubber, I think the option is always to import natural rubber. If there is a way that government could facilitate in terms of concession on import duty as well, it will really help.”
On rubber prices, Subbiah said, “Natural rubber prices, local prices have been around Rs 180 per kg for the last 3-4 weeks; it moved up from Rs 170 per kg to Rs 180 per kg largely on account of the supply-demand gap in the local market. International prices have also moved up. It will have an impact on the margins.”
He added, “As far as the current quarter goes, earlier we had indicated that raw material costs would go up. We expect it to go up anywhere between 4-5 percent in the current quarter versus the previous quarter. We stand by that in terms of our estimates. As far as the current quarter is concerned, we strongly believe the rubber prices will come down in a short while and I don't think it is a sustainable number. Prices will have to come down closer to import parity levels soon.”
On demand, he said, “Market continues to be similar to the previous quarter level as far as the replacement market is concerned. Different categories are performing differently. We have been observing some weakness in truck and bus tyres, farm tyres, which we shared earlier also and that continues; a little bit of weakness is there in two-wheeler tyres as well. From the OEM side, there has been some weakness, particularly in the two-wheelers and passenger cars on account of the shortage in chips. These two continue in the current quarter, so no major change versus the previous quarter. It is more or less stable.”
On export business, Subbiah said, “One of the issues that we are facing in the export segment is the availability of containers, vessels, and also steep increase in ocean freights that continues. We saw some softness recently, very small softness, also the vessels movement, container availability, would still be a challenge.”
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