Rising rubber prices pose threat to tyre companies, says Nomura; tyre stocks down up to 2.5%

Nomura cautious on tyre stocks

Japanese brokerage firm Nomura is cautious about tyre companies' stocks as a sharp jump in natural rubber prices poses a threat to the margins of companies in the tyre sector.

Meanwhile, the brokerage also highlighted that weak demand and rising commodity price could normalise margins faster for the sector.

The brokerage firm said that natural rubber prices in the domestic market have jumped 23 percent on a quarterly basis to Rs, 186 per kg. The increase in international rubber prices has been even steeper as they rose 66 percent quarter-on-quarter to Rs. 230 per kg.

The rise in rubber prices can be attributed to the demand-supply mismatch caused by adverse weather conditions in Thailand and disruptions in the Red Sea.

Also Read | Indian natural rubber prices may hit Rs 200/kg, the highest this decade

Traders believe that prices of Indian natural rubber may reach Rs 200 per kg during April-May and tyre companies will feel the heat in the first quarter of FY25.

The domestic rubber prices usually trade at a 10-15% premium to that of the global prices, said Nomura. The brokerage is of the view that domestic rubber prices can increase further and tyre manufacturers may try to take price hikes to pass on a part of the cost.

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Following the report, on March 19, the shares of CEAT Ltd, Apollo Tyres Ltd, Goodyear India Ltd, JK Tyre and Industries Ltd, and MRF Ltd fell up to 2.5 percent.

Shares of CEAT, Apollo Tyres, and MRF have gained over 20 percent in the past six months while those of JK Tyre saw a whopping 53 percent gain during the same period.