(Repeats with no changes to text)
By Rajendra Jadhav
MUMBAI Nov 1 India's tyre firms have stocked up
on rubber at low prices, locking in healthy margins that have
helped their share prices outperform those of international
competitors over the past month.
The two biggest gainers among the 59 tyre and rubber
companies in the Thomson Reuters Global Index over that period
were CEAT Ltd and JK Tyre and Industries Ltd
, which rose 51 percent and 39 percent respectively.
Balkrishna Industries Ltd and MRF Ltd
joined them in the top 10.
Just three months back, when tapping was disrupted by heavy
rain and farmers were holding back their rubber in hope of a
price rise, the tyre makers were struggling to secure supplies
even when they offered a 20 percent premium to global prices.
But the switch to aggressive importing by the tyre firms,
which take about two-thirds of domestic rubber demand, has
pulled local prices down by 20 percent in the world's
fourth-biggest producer of natural rubber.
"Tyre companies are getting as much rubber as they need at a
lower price," said Alex Mathews, head of research at Geojit BNP
Paribas Financial Services Ltd. "Their margin can rise by 10 to
15 percent if rubber prices stay at the current level."
Natural rubber imports from April to September jumped 59
percent from a year earlier to 179,292 tonnes.
Tyre companies' margins had been crimped earlier by a
slowdown in the Indian auto industry due to a rise in interest
rates and higher car prices.
"The rubber price drop suddenly changed the outlook of the
tyre industry," said a Mumbai-based analyst with a foreign bank,
who is not authorised to speak to the media.
"Companies may cut tyre prices marginally to boost sales,
but I don't think they will pass on the entire drop to
Natural rubber makes up more than 40 percent of the cost of
a tyre and the local rubber price has fallen to 159 rupees
($2.59) per kg, the lowest level in six months. Three months
back it was 195 rupees.
In Thailand, the world's biggest rubber exporter, natural
rubber sells at 71 baht ($2.29) per kg, well below half the 180
baht in February 2011. RSS3 smoked rubber sheet hit a record
$6.40 per kg that month. Today this export grade is at $2.45.
Rubber production in India peaks from October to January,
adding downward pressure to prices.
"Supplies will rise further in coming weeks. Peak tapping
season has started and the weather is favourable," said N.
Radhakrishnan, a dealer and former president of the Cochin
Rubber Merchants Association.
On top of that, farmers are selling old stock they had been
holding on to, wrongly guessing the price would rise, he said.
Farmers from Kerala state, which accounts for more than 90
percent of natural rubber production, now want the government to
raise import duties or even ban imports altogether.
With a general election due in the first half of next year,
all the political parties in the state are behind them.
"The hike in import duty is possible, but I don't think the
government would put a blanket ban on imports," said an official
at the Automotive Tyre Manufacturers Association.
The duty on natural rubber imports currently stands at 20
rupees per kg, or 20 percent, whichever is lower.
Whatever happens, domestic rubber prices seem unlikely to
rise any time soon.
"Now it has become a buyers' market. Tyre companies are
holding sufficient inventory from imports. If prices go up, they
can cut buying and wait for prices to correct," said
($1 = 61.3900 Indian rupees)
($1 = 31.0700 Thai baht)
(Additional reporting by Muralikumar Anantharaman in Singapore;
Editing by Alan Raybould)