Synthetic rubber prices drop, but demand not picking up

Domestic production up, but imports still needed

Though India’s production of SR has gone up in recent times, the country still imports several grades. India’s SR production is mostly confined to styrene butadiene (SBR), poly butadiene (BR) and some quantities of butyl rubber, while several other varieties, such as ethylene propylene diene rubber (EPDM), polychloroprene and silicon rubber, are fully imported.

``Global consumption of SR has slumped following the continued spread of COVID-19 in China, looming recession in the US, the energy crisis and the Russia-Ukraine war. As a result, the availability of SR grades has improved and prices have dropped, making it easier for India to import,’’ said Shashi Kumar Singh, vice president of All India Rubber Industries Association (AIRIA).

Logistic challenges

Towards the end of last year when demand picked up as COVID-19 cases subsided, the Indian rubber products industry faced logistics difficulties because of poor container and ship availability and escalating freight rates.
This had led to a runaway rise in SR prices. The freight rates have eased and availability of ships and containers has improved significantly now.

“Overall, the situation in India for the non-tyre rubber industry is much better despite funding problems. While rubber components have a GST of 18 percent, there are complaints of some companies charging 28 percent for those that are used in automobile parts. We have demanded the implementation of a uniform GST rate of 18 percent,’’ Singh said.

In the non-tyre segment, a lot of SR-based components, such as oil seals, and extruded and moulded equipment, are used as automobile parts. The footwear and pharma industries are the two other major sectors that use SR.

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Why is demand not picking up?

But the anticipated demand has not materialised for the tyre industry.
“The original equipment manufacturer (OEM) tyre sales have been weak and the replacement tyre segment for commercial vehicles has also not done well, probably because of too many holidays,’’ said Rajiv Budhraja, director general of Automotive Tyre Manufacturers’ Association.

So, the tyre industry has not been able to make full use of the slump in SR prices. While the second and third quarters of FY23 are likely to remain below par, Budhraja expects an improvement in sales by the last quarter.
“By that time, the current high-cost inventory will be exhausted and we will be able to make tyres with cheaper raw materials,’’ he said.

Passenger car radials use more SR than natural rubber. NR use goes up for heavier tyres requiring load-bearing capacity. India currently produces around 65 percent of its SR requirement and the rest is met by imports.
But consumption is rapidly outpacing supply. In 2021-22, SR production in India, at 485,165 tonnes, saw a 13 percent increase year on year (YoY).

Consumption, on the other hand, grew 17 percent, at 723,145 tonnes .
The situation has worsened in the first few months of FY23. As per Rubber Board data, SR production went down by around 5 percent to 155,645 tonnes from April to July 2022, compared to the same period of the previous year. At the same time, SR consumption in the country increased by over 10 percent during the period to 263,780 tonnes.