The tyre industry performed well during the first half of this fiscal thanks to strong automobile sales. This has prompted most tyre makers to draw up expansion plans, despite rising rubber prices. A clear trend this time around is that new capacity is being added to make radial tyres for the truck and bus (T&B) segment. Does this herald the switch-over of commercial vehicles (CVs) to radials something that was predicted earlier, but has not happened so far?
While 98% of tyres used in passenger cars are radials, the shift to radials has been very slow in CVs. Automotive Tyre Manufacturers Association (ATMA) data shows that only 18% and 8%, respectively, of light commercial vehicles and trucks and buses run on radials. A key reason for this could be the low demand for these tyres in trucks, given their prohibitive costs. Radial tyres are 15-20% costlier than bias-ply tyres and this factor has overshadowed their advantages of lower fuel consumption, improved safety, longer life and greater comfort.
A look at some key tyre makers indicates an imminent shift. Market leader Apollo Tyres Ltd plans to make around 200-300 tonnes per day (tpd) of radial T&B tyres compared with just 20 tpd currently. Likewise, Ceat Tyres Ltd, which has no radial capacity in this segment, will make around 100 tpd in about a year from now. Similarly, others like MRF Tyres Ltd and JK Tyres Ltd have drawn up plans to move ahead with similar capacities in the segment. Industry estimates are that while there will be no significant additions in the bias tyres in the segment, around 850 tpd of fresh radial T&B tyre capacity could come in over the next two years.
Analysts expect the transition to be smooth too, as the timing is appropriate. Buoyant sales numbers and improvement in industrial production along with better road infrastructure have led to higher volumes in the T&B segment. Around 18 months ago, while there was a buzz on radialization in this segment, the slowdown in the economy had made companies defer plans. According to an analyst, “In the interim, growth in the tyre industry would be shared by both bias and radials, ensuring near-full capacity utilization in the former segment. But, as radialization gains momentum, tyre companies will have to contend with excess capacities in bias.”
For now, the only threat is from rising rubber prices, which will lead to higher costs. The past two months have seen rubber prices rise by 50% compared with April, due to supply shortages. The onus is also on the CVs original equipment manufacturers (OEM) to fit radials on the assembly line, which is how the shift happened in passenger vehicles.
Convincing fleet owners of the long-term benefits of radials will play a key role in this transition. Gradually, it will lead to a shift in the replacement market too. The effect on the profit of tyre companies, of course, would be positive, since radials enjoy margins that are about 2 percentage points higher compared with bias tyres in the OEM segment. The differential would be even higher in the replacement market.
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