Tyre Manufacturers Face Price Hikes Amid Surging Raw Material Costs

With raw material costs surging to a 13-year high in June 2024, the tyre manufacturers face an uphill task. This unprecedented event has forced India’s leading tyre makers, such as CEAT and JK Tyres to hike the prices of their products.

Leading industry experts believe that the prices of raw materials will further surge by about 5% by the end of the current quarter. However, the situation may improve by the third quarter of this financial year in India. Moreover, the experts are indicating that the current uptrend will continue and it will further result in price adjustments for the tyre makers.

Commenting on how to tackle the current scenario, Kumar Subbiah, CFO of CEAT told the press that his company is looking to expand its presence in the international market. CEAT will also hike the prices of some tyres in the international and replacement segments. The tyre maker is also looking to launch truck and bus radial tyres in the international replacement market soon. Its focus is on increasing exports. According to Subbiah, progress in obtaining approvals within the OPM segment means that operations need to be scaled up in this quarter and the next to mitigate increasing prices.

One of CEAT’s rivals, JK Tyre, is adopting a two-pronged strategy. JK Tyre is aware that raw material costs are going up. To make sure that they can tackle this issue effectively, they are focusing on improving their product selection and running their operations more efficiently to lessen the impact on their profits. Sanjeev Aggarwal, CFO of JK Tyre said that his company was successful in passing on about 2% of the increased raw material cost to its customers as it has not lowered the prices despite the slowdown in rubber prices after June’s high. JK’s price hike for tyres is for the Indian market only.

According to ICRA, the domestic tyre volume growth is expected to be in the range of 4-6% in FY25. However, the replacement market which contributes about 66% of the industry volumes, is going to remain stable because of healthy demand across the segment.

Sharing his thoughts on this issue, Nithya Debbadi, assistant vice-president and sector head – of corporate ratings, ICRA, said that demand from original equipment manufacturers (OEMs) in some particular segments such as two-wheelers and passenger vehicles is expected to remain stable. On the other hand, the demand for the commercial vehicle segment may witness slack in the coming quarters.

It is worth noticing that the key components required in the manufacturing of tyres such as synthetic rubber, caprolactam, carbon black and not to forget natural rubber have witnessed sharp jumps in their prices since the start of 2024. Natural rubber prices have surged about 30% globally in about seven months. Currently, they are in the range of INR 215-220 per kg. The main reason is the supply shortage, created due to the bad weather conditions in Southeast Asia. The region contributes about 90% of the world’s natural rubber production.

India is a major natural rubber importer, the situation this year got worse because of disruptions in domestic production too.

The rise in natural rubber prices has raised tyre costs despite steady demand. Anurag Singh, managing director (MD) at Primus Partners, expects tyre prices to drop as rubber prices stabilise, with competitive dynamics limiting high-profit margins.