India rubber imports may match record as car sales climb

(Bloomberg News report)

Mumbai, India – Natural-rubber imports by India may match a record this year after prices fell into a bear market – with rising car sales boosting demand for tires.

Purchases in the 12 months that began 1 April may be similar to the all-time high of 324,467 tonnes a year earlier, said Sunam Sarkar, chief financial officer at Apollo Tyres. The Gurgaon-based company imports 50 percent of its requirements, he said.

Apollo, MRF and Ceat are among companies increasing imports as futures in Tokyo trade near a five-year low. Prices have slumped 63 percent from a record high in 2011 and may extend losses as a global glut stretches into a fourth year, a Bloomberg survey showed on 13 May. Tiremakers are benefiting from cheaper imports, helping them offset rising costs of raw materials made from crude oil, Sarkar said.

"Imports of natural rubber surged to these levels due to the price difference in the domestic and international markets," he said. "The trend is likely to continue for the next few months of the monsoon as the tapping of rubber is very low during the rainy season, keeping prices higher in the domestic market.”

Overseas purchases jumped 65 percent to 96,392 tonnes in the three months ended June from a year earlier, according to the state-run Rubber Board. Production climbed 11 percent to 167,000 tonnes during the period, while consumption rose two percent to 251,000 tonnes, board data show.

The auto industry, which represents 65 percent of India's rubber demand, is poised for a recovery and margins of tire companies will continue to expand. Profit margins of Apollo Tyres are between seven percent to nine percent this year, Tushar Pendharkar, a Mumbai-based strategist at Right Horizons Financial Services, said.

Apollo reported a net income margin of 7.6 percent in 2013-2014, according to data compiled by Bloomberg. The shares dropped 1.1 percent to Rs 190.70 (€2.34) in Mumbai, paring gains this year to 78 percent.

Annual car sales are headed for the first annual increase in three years as Asia's third-largest economy rebounds from near the weakest pace in a decade, according to the Society of Indian Automobile Manufacturers. Passenger vehicle sales, which include SUVs and vans, climbed 1.3 percent in the April-June quarter to 615,322 units, according to data from the society.

"With the new government in place, there is already a positive sentiment across industries," Sarkar said. "The demand has already started improving for automobiles." India's economic growth will rebound under new Prime Minister Narendra Modi to 5.4 percent in 2015 from near the slowest in a decade, according to a Bloomberg survey.

Consumption in India will climb 4.1 percent to 1.01 million tonnes this year, according to the board. The nation buys rubber mainly from Thailand, Malaysia and Indonesia, and is the largest consumer after China and the US, according to the Association of Natural Rubber Producing Countries.