Rubber prices surge 33% this fiscal, Tyre manufacturers under pressure: Crisil
Sep 29, 2024
New Delhi [India], September 29 : Tyre manufacturers are grappling with soaring natural rubber prices, which have surged by over 33 per cent in last five months of fiscal 2025, Crisil said in its recent report.
Stretched supply and rising costs of natural rubber have created a challenging environment for tyre makers, it said.
Natural rubber constitutes 20-40 per cent of weightage in the tyre manufacturing process, depending on the category. The tyre industry accounts for around 80 per cent of natural rubber consumption in the country.
Natural rubber prices, which have remained subdued for much of the past decade, has now breached the Rs 200 per kilogramme mark. The situation recalls the price surge last seen in 2011, when prices hit all-time highs after the global financial crisis.
"Since the end of 2023, however, skyrocketing prices have again breached the Rs 200/kg mark amid a raft of challenges -- and tight supplies of natural rubber have cast a long shadow on the industry even as steady expansion of the automobile industry and other major consuming industries keeps demand healthy," the report said.
This latest spike is attributed to a fundamental imbalance in supply and demand, rather than short-term disruptions, report adds.
According to the report, the current surge in natural rubber prices is primarily driven by demand outstripping global production capacity. Between fiscals 2011 and 2023, global natural rubber production grew by 35 per cent, while demand surged by 40 per cent.
This widening gap has left the market struggling to meet the needs of tyre manufacturers. The tyre manufacturer has been the largest consumer of natural rubber, as per the report.
Unlike previous price surges caused by factors such as labour shortages or one-time shocks like the COVID-19 pandemic, this recent increase reflects deeper, structural issues within the natural rubber market, as per the report.
Despite steady expansion in the automobile sector and other key industries, rubber supplies have failed to keep pace.
The current price resurgence reflects a more entrenched mismatch between supply and demand. According to the report, in response to the spiralling prices, tyre manufacturers are faced with difficult choices. Many are attempting to pass on costs to consumers by increasing the price of tyres, but the extent to which this can be done is limited by competitive pressures in the market.
Additionally, the elevated costs of raw materials are squeezing profitability, creating a challenging landscape for the industry, the report mentions.
