With price of natural rubber, the key raw material in the tyre sector, continuing to surge, tyre makers are expected to implement more price hikes in Q4 FY25, to protect their margins, according to industry players and analysts. This will add to the total cost of ownership of cars.
The prices of domestic rubber stabilized during the December quarter quarter, but international rubber prices continued to surge. The prices are further expected to increase in the coming quarters.
“With further rise in demand and restricted supply, the prices of natural rubber are expected to remain elevated, impacting the margins of tyre manufacturers well beyond fiscal 2025. The deficit in the natural rubber market is expected to triple in 2024 as smaller tappable area and lower yield, along with a potential increase in demand, test the supply side,” said Mohit Adnani, Associate Director- Research, Market Intelligence and Analytics, CRISIL.
Tyremaker CEAT reported a consolidated dip in profit of 46.4 per cent in Q3 owing to the continuous increase in raw material prices. While the company implemented a price hike of up to 3 per cent in the quarter, it plans to further increase the prices of its product offerings.
“We took price increases during the last week of the quarter in different segments, particularly in the passenger car radial segment, truck and bus radial tyres and LCV. The full quarter benefit will come in the next quarter. We will have to take more price increases in other categories in quarter 4 for the company to get back to the normal range of margins. We expect the raw material costs in quarter 4 to be 1 or 1.5 per cent higher than in quarter 3. The prices of domestic rubber have decreased but international rubber prices continue to be elevated,” said Kumar Subbiah, CFO of CEAT to businessline.
Experts have pointed out that the tight supply of natural rubber globally has cast a shadow on the industry even though the expansion of the automobile industry and other major consuming industries has kept the demand healthy.
“Raw material prices, including natural rubber, remain volatile due to supply chain disruptions and fluctuating demand. The industry right now is absorbing the cost pressure demand but it is not possible to do the same sustainably in the long run. We hope the natural rubber prices may stabilize once production levels in Southeast Asia recover and supply chains normalize. The industry has also taken the initiative to increase the quality and quantity of rubber production through the INROAD initiative. This step should also provide some relief by giving manufacturers an option to locally source good quality raw materials,” said Samir Gupta, Head of Central Region – BA Tires APAC, Managing Director – Continental Tires, India to businessline.
Credit rating agency ICRA has projected a domestic tyre volume growth to moderate to 4 to 6 per cent in FY2025.
“While revenues would expand by 5-7 per cent in FY2025, high natural rubber (NR) prices and increasing crude prices are likely to moderate the tyre industry’s margins by 200-300 bps in FY2025,” mentioned ICRA.
