Subdued Q1 growth in most segments worries tyre sector

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Weak demand in the first quarter has raised the Indian tyre industry’s concerns about a sales growth pickup in the current year.

After a good performance last year, the tyre sector has had a dull first quarter, with growth subdued in most segments. Passenger car tyres, especially original equipment (OE) sales, have been the only silver lining in this otherwise depressing situation. Exports have also taken a hit.

Interestingly, demand has shrunk at a time when raw material prices, particularly the prices of synthetic rubber and chemicals, have fallen and stabilised after surging at the start of the Russia-Ukraine war.

Last year, growth in sales of domestic tyres was average in the first two quarters but saw a slight revival in the third quarter. The real growth happened in the last quarter, according to Rajiv Budhraja, director general of the Automotive Tyre Manufacturers’ Association (ATMA), an industry lobby. “Overall, passenger car radials (PCR) and truck and bus radials (TBR) showed about 8 to 10 percent growth in the year. Two- and three-wheeler tyre sales remained flat while tractor tyres showed slightly negative growth," he said.

All the major tyre companies, including MRF, Apollo Tyres and JK tyres, have posted good results for FY23. The car tyre boom has continued in the current year as well, with a long waiting list for launches. Usually, sales rise in the first quarter before softening by July, when monsoon spreads across the country. But this year, despite the insufficient rain in June, vehicle sales have been weak.

The tyre sector is also worried about the impact of the withdrawal of anti-dumping duty on tyres imported from China. The levy was introduced a couple of years ago and helped check the inflow of cheap Chinese tyres but was removed last December. “The impact of withdrawal of the duty is yet to be reflected on the tyre industry. It may take some more time," Budhraja said.

Most tyre companies are not operating at full capacity as the offtake has been slow. As a result, consumption of raw materials such as natural and synthetic rubber has also dipped. “This year there have been layoffs in software companies and economic growth is lower than expected. These factors may have forced Indian consumers to defer purchases in the replacement tyre segment,” said Ashish Pandey, senior vice president (materials), JK Tyres.

Export decline

The decline in tyre export growth last year worsened in Q1 of FY24. As per an ATMA report, Indian tyre exports grew 9 percent in FY23 to Rs 23,121 crore. The growth was higher, at 50 percent, in the previous year. According to the report, rising interest rates, political turmoil and slowing demand have affected exports. In quantity terms, exports declined 15 percent to 47,260,000 units. In value terms, farm and agri tyres had a share of over 40 percent in exports followed by off-the-road (OTR) tyres at 22 percent. In terms of volume, passenger car radials accounted for 20 percent followed by the farm and agri segment at 19 percent.

“In the last few months, tyre prices have dropped and many countries are facing a recessionary threat. The US’s home tyre production is threatened by lower priced imports. As elections are approaching, they may think of checking imports to help the local industry," said Pandey. In April, the US International Trade Commission (ITC) had decided to retain tariffs on OTR (off the road) tyres from India.

Competition has intensified among Asian countries China, Thailand and Vietnam besides India to export tyres to the US and Europe. With labour being cheap, Asian countries hold the edge in tyre exports in the global market.

Input costs fall

Raw materials such as synthetic rubber varieties have become cheaper and are abundantly available now. The prices of styrene butadiene (SBR) and poly butadiene (PBR), two important synthetic rubber varieties used by the tyre industry, have seen a 25 per cent correction. “SBR prices are down to $1,500 per tonne from around $1,900 a year ago. PBR prices, too, have dropped along the same level. There is enough supply in the market as well," said Vishal Jhunjhunwala, director of Bombay Chemicals and Rubber Products.

Natural rubber prices have declined by over 12 percent year on year. Freight rates, which had escalated after the pandemic, have also stabilised.
Pandey is hoping for a repeat of the trend of past years. “The Covid outbreak and the war all happened in the first half of the year. And we have seen the economy recovering in the second half. We are hoping this will happen in the current year, too," Pandey said.