Mumbai: Tyre output growth in the country is likely to almost halve in the fiscal year ending March 2012 to 12%, as vehicle sales slowed because of higher interest rates, hitting demand from automakers, a senior industry official said.

“As it is, this quarter (September) is a lean quarter and OEM (original equipment manufacturers) demand has been fairly subdued. As of now, things are subdued," Rajiv Budhraja, director-general of the New-Delhi based Automotive Tyre Manufacturers’ Association told Reuters in an interview.

“Replacement demand has not been impacted very significantly, but overall sentiment was low," Budhraja said.

Tyre production in the first four months of this fiscal rose by 14% to 42.4 million units but overall growth is likely to be 12% in the current year as the sector is witnessing a softening in demand in the past two months, he said.

The country’s tyre production had grown more than 22% to 119.2 million units in FY11 helped by car sales that grew at a breakneck 30% last year.

Demand for cars in India is likely to slow more than predicted as high interest rates and rising costs bite, while automakers mull price hikes that could further stifle purchases in the world’s second-fastest growing auto market after China.

A slowdown in passenger car segment, a key revenue driver for tyre makers, is likely to pull down overall growth in the industry.

Passenger car tyre output has grown 11% o 9 million units between April to July. In FY11, the segment had posted a robust 31% growth.

“In passenger car segment, OEM demand has dropped significantly, but replacement demand is there, so growth may be 9-10% (for the year)."

Car sales fell 10.1% in August.

Last year leading tyre makers MRF Apollo Tyres, JK Tyre & Industries and Ceat had announced capacity expansion plans to cater to the then ballooning automotive demand and it was unlikely the firms would cut back on the plans.

“The expansion plans are on schedule because...they have come so far ahead that I don’t think at this point one would want to put the expansion on the backseat."

Cheaper Imports

The Indian tyre industry has been hit by higher rubber costs and slower demand. Now cheaper Chinese tyre imports are further threatening profit margins of tyre firms.

“Import is a matter of concern, because even with the anti-dumping duties in place we find imports have been coming in such large numbers, mainly because of circumvention and other trade malpractices," Budhraja said.

Of the 5,33,000 units of truck and bus tyres imported by India in April-June, 57% were from China alone and the trend has shown no signs of abating.

“If the current global slowdown continues and China’s exports to other developed countries take a beating, then you can expect this level of imports."

Last year India had imported 1.2 million units of trucks and bus tyres from China alone, accounting for 68% of total imports for the segment.

“This year imports should be up by another 10-15% on year," Budhraja said.

In the quarter ending June, profit margins of tyre makers suffered due to higher raw material costs and the sector slowdown is making it difficult for tyre firms to raise prices.

“Price increase looks difficult, although there is a need."