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Lowering anti-dumping duties will hurt tyre makers hard

Lowering anti-dumping duties will hurt tyre makers hard
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First Published: Mon, Aug 22 2011. 11 58 PM IST
Updated: Mon, Aug 22 2011. 11 58 PM IST
It certainly looks like the tyre industry will have to endure more pain before hitting the road to profitability. Just when news of rubber prices cooling off revived confidence in the sector, a new set of adversities seems to have cropped up.
There is a move to do away with the anti-dumping duty on imported radial tyres, which has so far protected domestic companies from cheap tyre imports made by other Asian manufacturers, mainly China. As imported tyres are nearly 25-30% cheaper than domestic ones, freeing up imports will threaten sales growth at a time when the domestic original equipment and replacement markets are slowing.
Also See | Softening Prices (PDF)
June quarter sales belied the anticipated slowdown, with companies such as Apollo Tyres Ltd and Ceat Ltd clocking phenomenal sales growth of about 55% and 38%, respectively, from a year ago. But in a recent analysts’ call, the Apollo Tyres management spoke of a general auto slowdown, indicating plant shutdowns at some units to reduce inventory piling up. Besides, the September quarter performance is normally subdued for tyre companies compared with other quarters. The auto sector sales growth estimate for fiscal 2012 (FY12) is down to about half of that registered in FY11.
Also, export growth may slow from earlier quarters due to the gloom in the US and Europe. Further, with heightened competition from cheap imports, tyre makers will find it tough to raise prices and improve realizations.
The only relief for the industry has been the steady drop in rubber prices—they have fallen from peak levels of Rs 240 per kg (RSS-4 Grade) to Rs 198 in the last two months, after an incessant rally for nearly two years. The fall in crude prices also augurs well for the sector.
However, analysts reckon margins will improve only in the December quarter as the current one will reflect high-cost raw material inventory that most firms are saddled with. The high cost of rubber squeezed operating profit margins of all tyre firms in the June quarter. In fact, Ceat even went into the red.
Tyre stocks had started inching up following the slide in rubber and crude prices in the global markets. Positive cues from an estimated 4-5% growth in domestic rubber production for calendar year 2011 also fuelled the rise in tyre stocks.
But speculation about the withdrawal of anti-dumping duty,the domestic sales slowdown and clouds on the export front seem to have deflated the sentiment again.
Graphics by: Ahmed Raza Khan/Mint
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First Published: Mon, Aug 22 2011. 11 58 PM IST