The Indian auto industry’s pain is set to aggravate further as the key raw materials that go into the making of tyres, are running short; leading to supply constraint at domestic tyre manufacturers and rubber part makers.
Natural rubber, nylon tyre cord, carbon black and rubber chemical are in short supply due to supply chain disruptions caused by COVID-19 and shipping container shortage, three people aware of the matter informed Mobility Outlook on the condition of anonymity.
“There is a warning in the supply of natural rubber and raw materials. We are hugely dependent upon China for raw materials like tyre fabric and carbon black but due to some embargo restriction in transportation and movement of freight, there is a serious crunch of supply of these items. About 40-50% of raw materials are imported from China. One the other hand, supply from countries like Thailand and Vietnam is affected because of drought, floods and leaf disease,” said one of our industry sources.
Anshuman Singhania, Chairman, Automotive Tyre Manufacturers’ Association (ATMA) said, “Raw material security continues to be a challenge with the tyre industry in India. For instance, the domestic production of natural rubber, the key raw material, is short of its requirement.”
The Rubber Board has made efforts to increase the production and productivity of natural rubber in the country. However, the pace of natural rubber demand has invariably outstripped its domestic supply in over a decade, he said. Notably, India produces about 60-70% of natural rubber consumed by the industry, while the remaining 30-40% is imported, according to the Rubber Board.
It must be noted that to manufacture a passenger vehicle tyre, about 14% natural rubber, 28% carbon black, 16% fabric, 14% high carbon steel wire and 27% artificial rubber is used.
Concern on Shortage
“Seeing the rising demand for and long waiting period of passenger vehicles, and domestic sales figures catching up to the pre-COVID levels, there is concern on shortage of natural rubber. In fact, the next six months will be challenging for the industry to secure raw materials for production of tyres, as there is a seasonal slump in production of rubber between February and September,” said Rajiv Budhiraja, Director General, ATMA.
However, the situation isn’t as bad as the shortage of semiconductors, Budhiraja said. But with rising demand from the auto industry and replacement tyres, plants are already running at their peak. Any further disruption due to the second wave of COVID-19 will have an impact on tyre production, he said.
| Natural Rubber (April-Jan) | 2019-20 | 2020-21 |
| Production | 627000 | 606000 |
| Consumption | 955620 | 872910 |
| Import | 400764 | 330962 |
| Export | 10521 | 9852 |
| Net Availability (P '-'C '+' I '-' E) | 61623 | 54200 |
| Stock | 310000 | 348000 |
Source: Rubber Board
On the contrary, leading tyre manufacturer Apollo Tyres said they are not facing any issue with natural rubber availability for its plants. Satish Sharma, President, Asia Pacific, Middle East and Africa, Apollo Tyres said, “In addition to the replacement demand, the demand for our products from OEMs is also extremely robust. As of now, with our plants running at peak capacities, we are meeting the demands for all segments of the market.”
A rubber part manufacturer, on the condition of anonymity, revealed that the majority of tyre manufacturers are cash-rich and have an inventory cycle of two to three months. Hence, there will be no immediate impact on them. Unlike them, the small rubber parts manufacturers have inventory levels of 10-15 days.
Outlook
The second wave of COVID-19 notwithstanding, the Indian economy as well as the Indian automotive sector is expected to achieve decent growth in FY22, resulting in a strong demand for natural rubber, from the tyre sector in particular.
The sector has witnessed impressive growth in Q2 and Q3 of FY21, and a similar trend is expected in Q4 as well, with an indication of the continuing positive momentum in FY22.
All the major tyre segments witnessed double-digit growth during the Jul-Dec period in 2020 as compared to the same period in the previous year. Increasing demand for natural rubber with a relatively static domestic supply carries an early message of a wider gap for natural rubber in the coming fiscal. The equation of natural demand and supply need to be balanced with greater attention as the gap could be more than 600,000 MT in FY22.
Moreover, on the global supply front, natural rubber production is expected to decline in Q1 of CY21. The global outlook of natural rubber supply is estimated to recover at 1.3% YoY to 910,000 tonnes in March 2021, while the global consumption is projected to be 1.234 million tonnes, up 7.4% during the same reference period.