Tyre industry to face rubber shortage after Kerala floods

"We expect the natural rubber output to decline by 1.2-1.4 lakhs MT (or) 18-20 percent fall during FY2019. With the natural rubber being a critical raw material, the sharp fall in output will have consequent impact on the Indian tyre industry. It accounts for 32 percent and 35 percent of total inputs, in volume and value terms, respectively," agency's Vice President (Corporate ratings) K. Srikumar said.

India is the second largest consumer, consuming 8 percent of global natural rubber output, after China.

Despite India also being one of the key producers contributing to over 5 percent of global output, it remains a net importer.

"During FY2018, India produced 6.9 lakh MT of natural rubber but consumed 11.1 MT, with the supply gap being fully met through imports from Indonesia, Thailand, Vietnam, etc, the agency said.

Imports have accounted for 40 percent of consumption in the last five years and the same is expected to reach 50 percent during the current fiscal with the shortfall envisaged in output.

With demand exceeding supply, domestic natural rubber prices have increased by over 10 percent during the period April-August 2018, including an increase of over 5 percent in the last one month.

"As the domestic prices continue to increase due to supply shortage concerns, domestic tyre makers continue to import with the current landed costs lower than domestic prices. However, with the expected rise in both domestic and global prices, exacerbated by the depreciating rupee, the tyre manufacturers are likely to witness pressure on margins. We expect a 100-bps contraction in operating profit margins for FY2019," Srikumar said.