Mumbai: Tyremaker Ceat Ltd is planning to hold product prices through the next two months in the face of a global rally in rubber, a key input that makes up over 40% of the cost of a tyre, a senior official said.
The benchmark rubber November contract on India’s National Multi-Commodity Exchange (NMCE) on Wednesday hit a record high of Rs19,760 per 100 kg, handsomely beating the previous 15 July high of Rs19,375.
“The monsoon has been a little bit extended and therefore markets are looking slightly worse than usual. So price increases are looking a little difficult in the short term,” Anant Goenka, deputy managing director, told Reuters on Wednesday.
Ceat, India’s fourth largest tyremaker, hiked prices by 3-4% in the last quarter that effectively rounded up a 15% jump from the year-ago quarter, but still not enough to cover margins adequately.
Ceat’s second quarter net profit took a 75% knock on year to Rs152.7 million, when galloping rubber prices defeated a rise in sales.
“Our input price has gone up by about 40% primarily led by rubber, which has gone up by nearly 100% over last year”.
Ceat is grappling with the price surge through capacity additions and volume increases, and ramped up capacity at its Nashik plant in Maharashtra by 1,000 tonnes per month.
Its Rs600 crore, 130 tonnes a day plant at Halol in Gujarat, is expected to be commissioned in a month’s time.
Ceat wants to relocate its parent plant in Bhandup, Mumbai, which accounts for half its production, outside the city. “We need to set up another plant first, which will take at least another year-and-a-half to two years. Only once that is done can we think of moving out of Bhandup,” he said.
“We have acquired some land in Ambernath and are exploring that as an option of setting up a new plant,” Goenka added.
Ceat had imported substantial amount of rubber earlier this year when there was a wide gap between global and local prices. However, the current rubber rally is pretty much global.
Spot price in Thailand, a key destination for Indian importers, has risen nearly 37% so far in 2010. “Imports are not looking viable as you have a 20% duty on rubber imports right now, we are going to be picking up primarily from the domestic market.”
Top Indian tyre maker MRF closed 1.05% lower at 9,287.35 rupees, Apollo tyres ended 0.7% down at Rs78.45 and JK Tyre and Industries closed 3.2% down at Rs170.95.
Ceat shares ended 3.98% lower at Rs161.8 in a weak Mumbai market.