Tyre makers expected to hike prices on surging raw material costs
Sharad Matade 12 January 2011

Industry players suggest a phased increase in prices as rubber input costs continue to impact margins

Tyre manufacturers may increase the prices of their products this month as rubber input costs continue to climb in the domestic and international markets. The increase in prices of tyres is likely to be in the range of 3%-5%, according to industry players and analysts.

"Prices of rubber have touched a fresh record level in both the international and domestic markets. Tyre companies are expected to increase prices of tyres this month. It's difficult to predict the quantum of the hike, but it could be between 3% and 5%," said an analyst at a Mumbai-based research firm, who requested anonymity.

"Of course, we are under pressure due to rising prices of rubber in the domestic market. We are monitoring the raw material prices and if rubber prices go up then it will push tyre prices too," RK Agarwal, head of marketing, Modi Tyres, told Moneylife. But Mr Agarwal did not give an estimate of the quantum of increase.

Apollo Tyres, Ceat and Bridgestone already hiked prices of their products by 1%-2% in December.

"We are expecting an average hike of 3% this month," said a Mumbai-based distributor of one of the country's major tyre makers.

On Tuesday, rubber prices touched Rs216 a kg in the Kottayam and Kochi markets. Prices have increased about 25% within the past three months in the domestic and international markets, mainly due to lower output in the main rubber-producing countries.

"Margins of tyre companies are under pressure and to maintain the current margin level tyre manufacturers will have to increase prices by 8%-10%," Surjit Arora, analyst at Prabhudas Lilladher told Moneylife.

However, such a steep increase may not be viable due to high competition not only among Indian players, but also from Chinese manufacturers. Companies may not be able to pass on the full hike and they may take a hit in operating margins in this quarter, according to analysts.

Experts suggest that the price increase will happen in a phased manner as a large one-time hike could cause lower demand. In the April- December 2010 period, tyre manufacturers increased prices by around 12%.

"One round of a price hike of 3%-5% would happen in this month, although this would not be sufficient to maintain margins," Mr Arora said.

Rubber prices have edged up daily over the past month as unseasonal rain in the major rubber-producing countries interrupted tapping and plantation work, resulting in a fall in arrivals. The slow supply in the market has agitated rubber prices globally

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