Rising synthetic rubber output helps cushion impact of high import costs for tyre makers

Domestic production of synthetic rubber more than doubled to 479,000 tonnes, or 64 percent of consumption, in 2021 from 216,000 tonnes, or 35 percent of consumption, in 2016, according to a survey by the Automotive Tyre Manufacturers’ Association (ATMA). Dependency on imported synthetic rubber has fallen to 36 percent from 65 percent in the same period.

Imported grades

“Overall production capacity of synthetic rubber has improved. Yet, it is still not sufficient to meet soaring consumption. Some grades not manufactured in India are fully imported,” said Rajiv Budhraja, ATMA director general.

In contrast, natural rubber production increased by 20 percent to 751,000 tonnes from 624,000 tonnes in the five-year period. Consumption grew at a faster 22 percent to 1.26 million tonnes in this period. As a result, India now imports more natural rubber than synthetic rubber.

Indian production of synthetic rubber comprises mainly of three varieties – styrene butadiene (SBR), poly butadiene (PBR) and butyl rubber. The import of these three varieties has decreased over the years with the rise in domestic output. Other grades like nitrile rubber (NBR), ethylene propylene (EPDM) and ethylene vinyl acetate (EVA) are mostly imported.

About 70 percent of synthetic rubber goes into making tyres and their accessories. Passenger car tyres have 75 to 80 percent of synthetic rubber. Truck and bus tyres, which need load-bearing capacity, use a higher proportion of natural rubber.

After the pandemic eased last year, demand for synthetic rubber surged with the opening up of economies and supply is struggling to keep pace with demand.

“Supply is tight now and the cost has snowballed. Russia was a major supplier. But after the war started, supply from the country dried up. There is a shortage of PBR in India,” said Vishal Jhunjhunwala, director of Bombay Chemical and Rubber Products.

According to Transparency Market Research, the high cost of natural rubber owing to depleting plantations across the world is another factor that is spurring the growth of the global synthetic rubber market. Cheaper synthetic rubber has emerged as a viable alternative to meet the rising demand from the automobile and construction sectors.

Producers are also launching eco-friendly versions since conventional synthetic rubber contains silica, which reduces roll resistance. Soaring demand for green tyres (made of sustainable rubber products) is likely to positively influence the market.

Construction, infrastructure

A significant share of the overall demand for synthetic rubber arises from its use in making inexpensive construction materials. A large impetus has come from emerging economies, where infrastructure development has proliferated in recent years, it said.

While the tyre industry has several big companies and is able to absorb the high cost of synthetic rubber imports, the non-tyre segment, which largely comprises small and medium units, is struggling to survive as the burden is in addition to a jump in natural rubber prices and other costs.

The non-tyre industry segment caters mainly to production of hoses, pipes, conveyor belts, footwear, adhesives, and seals.

“With the rise in prices and the depreciation of the rupee, the non-tyre sector is finding it difficult to absorb increasing costs. We are discussing with the government the possibility of starting manufacture of those synthetic rubber varieties that are chiefly imported,” said Sawar Dhanania, president of the All India Rubber Industries Association.

After the outbreak of the pandemic, countries are ramping up synthetic rubber production capacities to reduce dependence on other nations for raw material.

Footwear tax

The footwear industry has been hit by the government’s decision to increase GST to 12 percent from 5 percent for products under Rs 1,000 this year, which accounts for the major chunk of sales. The use of synthetic rubber in footwear has gone up sharply over the years and its consumption is about 80 percent in the industry now.

“The prices of polyurethane and EVA have gone up by 60 to 100 percent. The price of poly vinyl chloride (PVC) has declined slightly but it is still high. Russia is a big supplier but imports have been disrupted after the war started,” said V Noushad, MD of Walkaroo International.

Manufacturers are reluctant to increase prices of products for fear of losing already thinning sales. Noushad said many customers are now shifting to low-quality products.

Some producers have passed on the higher costs to consumers. Vajra Rubber Products, which supplies gadgets to automotive, aerospace, defence and oil field sectors, was forced to increase prices of the products.

“The availability of synthetic rubber raw materials is not a problem though many companies have shut down. We import from Korea, Japan and the US. But the freight rates have escalated four times and synthetic rubber grades have become costly. The costs have gone up by 40 to 60 percent,” said PS Kannan, marketing director of the company.

TMR pegged the global synthetic rubber market at $39.4 billion in 2020 and it is projected to grow at 5.1 percent for 10 years from 2021.