Falling Rubber, Crude Oil Prices To Boost Tyremakers’ Profitability

A fall in rubber and crude oil prices will help tyremakers improve their operating performance after they reported lower margins in the quarter ended September.

Natural rubber prices fell more than 11 percent from their August peak, according to National Commodity & Derivatives Exchange Ltd.’s data. Crude prices also slipped 20 percent from their four-year high. Tyremakers use a mix of natural and synthetic rubber—a derivative of crude oil. Natural and synthetic rubber form 50-55 percent of costs for making a tyre, according to Citi.

Operating margin of Ceat Ltd. and Apollo Ltd. during the September quarter fell to their lowest level in a year due to rising costs that pushed up prices. The prices of passenger car tyres were increased by nearly 2 percent in September, while the cumulative hike for truck tyres was 3.5-4 percent in the ongoing financial year.

“The price hike will provide cushion to overall operating performance,” said Hardik Shah, analyst at Prospero Finvest. “The fall in raw material costs will aid margins with a one-quarter lag.”

Financial services provider Deutshe Bank and Citi expect a 7-8 percent annual growth in demand for the next two to three years. But a slowdown in the automobile sector or the replacement market may impact the financial performance of tyremakers, they said.