Opportunity and uncertainty ahead for Ceat

Article originally published in Nov/Dec issue of European Rubber Journal magazine:

Indian tire maker CEAT sees opportunities alongside the many emerging challenges now impacting domestic and global tire markets

The global tire industry is currently undergoing an unexpected series of market-disruptions and upheaval, according to Anant Goenka, managing director of Indian tire maker CEAT Ltd.

“Growing nationalism, currency fluctuations, rising crude and commodity prices have resulted in market conditions that could not be anticipated as recently as a year ago,” Goenka explained in written comments to ERJ.

“China, which has become a dominant player in the world tire market, is threatened by duties imposed by the EU and the US. Rising crude and depreciating currencies are leading to an increase in raw materials prices for many Asian and developing economies.”

However, said Goenka, market-demand in India “looks robust. Demand for truck & bus radial tires, particularly has seen a major uptick since the imposition of anti-dumping duties on Chinese tires.”

Moreover, continued the MD, rising income-levels within a “burgeoning middle-class” are leading to an increase in demand for passenger cars and utility vehicles.

Other favourable trends, he said, include a rural-development drive by the Indian government and a rise in women commuters which are leading to strong growth rates in two-wheelers.

“Encouraged by these trends, we can witness a major boost in investment in capacity-expansion projects across categories by the Indian tire industry currently,” said Goenka.

Materials costs

Among current challenges, though, are rising costs for raw materials, such as natural rubber, synthetic rubber, tire cord fabric and carbon black.

As they account for about 60% of total tire-cost, any sort of price-change in raw materials affects profitability, noted the CEAT boss.

India is particularly dependent on imports for natural rubber “because of the lower and volatile domestic production,” Goenka adding that the recent Kerala floods had made the domestic-supply situation even worse.

India, he added, attracts the highest import duty on natural rubber in the world, which along with an “inverted-duty structure” poses a stiff challenge to local players.

“Import costs have been significantly affected by the depreciating domestic currency adding to the woes of the industry,” he added.

In the last year, the Indian tire industry has also faced carbon black shortages due in part to a clampdown by environmental authorities on some plants in China.

To mitigate such issues, Goenka said: “We are continuously looking to develop new sources for raw materials supplies and augment the share and capacities with the existing ones.

“We are also partnering with [suppliers] to help create robust and reliable delivery and quality systems to create a win-win for both of us.”

Global plans

Asked about overseas expansion plans, the MD pointed out that CEAT currently exports to over 90 countries across the globe and has set up offices in Indonesia, UAE, Germany and The Netherlands to better serve customers.

The plan now is to establish an increased presence in the various tire markets through the continuous development of products customised to local-customer needs backed by strong channels and “insightful” communication.

“A few years ago, we re-entered European markets,” the CEAT leader added. “Today, we are selling these tires in Italy, Spain, Poland and Greece, with a go-to-market strategy in place for entry into more European countries.  We have also setup an R&D office in Frankfurt, Germany to support this plan.”