While the rubber prices have fallen from the recent peak, they are still quite high. In an interview with CNBC-TV18, AK Kinra, CFO, JK Tyre, speaks about the impact of rising rubber prices on tyre companies.
Below is a verbatim transcript of their interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh. Also watch the accompanying video.
Q: The topic of discussions is rubber prices. We have seen while they have fallen from the recent peak, but they are still quite high. In fact we have an expert predicting a 60% rally from these prices. What is your outlook?
A: As far as the rubber prices are concerned, after seeing a peak of about Rs 194-195 a kg, currently these are hovering between Rs 165 to Rs 168 a kg. These are still very high as compared to what you see in the last one-and-a-half year.
In the last one-and-a-half year, the prices have almost gone up as much as about one and a half times. Since rubber constitutes as much as about 40% of the total cost of production, these comprise a very high proportion to the cost of tyre.
The prices of tyres have not moved in the same proportion as the cost of rubber. So, this is where the situation is. The situation is not being helped by an inverted duty structure whereby the import duty on the imported rubber is very high and on the end product, which is tyre is low. It should always be the other way round. The customs duty on the raw material should be lower than the duty on the end product. So, that situation is not being helped by it.
I think this situation is very difficult situation for the industry. Though the demand for tyre is very good, but the prices of tyres have still not moved in consensus with the rubber price increases.
Q: Since the demand for automobiles is very strong at this point, why is it that you are not able to pass on? How much do you think you will be able to pass on in October, what impact on margins?
A: In couple of months, I am not able to say how the prices will move, but I personally feel it will all depend upon how the natural rubber prices behave. But if the natural rubber prices are where they are currently, I think the prices may move up by 1% to 1.5%. But if the prices behave very erratically then naturally the prices of tyre will move up. This will be very difficult at this stage to estimate what kind of increases will take place in the near future.
(moneycontrol.com)
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