Natural-rubber imports by India, the world's third-biggest consumer, may match a record this year after prices fell into a bear market and as rising car sales boost demand for tires, according to Apollo Tyres.
Purchases in the 12 months that began on April 1 may be similar to the all-time high of 324,467 tonnes a year earlier, said Sunam Sarkar, chief financial officer of India's second-biggest tiremaker by market value. The Gurgaon-based company imports 50 per cent 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 per cent from a record high in 2011 and may extend losses as a global glut stretches into a fourth year, a Bloomberg survey showed on May 13. 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," Sarkar said by e-mail on July 14. "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, he said.
Overseas purchases jumped 65 per cent to 96,392 tonnes in the three months ended June from a year earlier, according to the state-run Rubber Board. Production climbed 11 per cent to 167,000 tonnes during the period, while consumption rose two per cent to 251,000 tonnes, board data show.
Global prices
"Apollo Tyres and MRF have significantly expanded their profitability in the past several quarters and that happened in a sluggish scenario of the auto industry because of a decline in rubber prices overseas," said Tushar Pendharkar, a Mumbai-based strategist at Right Horizons Financial Services.
Prices in India averaged $2.41 a kg in the three months through June versus $2.04 in Tokyo, according to data compiled by Bloomberg. The benchmark RSS-4 grade in India fell 4.4 per cent in the April-June quarter and was at Rs 141.5 ($2.35) a kg on July 15, board data showed. Futures in Tokyo dropped 10 per cent during the same period and traded at ¥202.6 a kg on Friday. Prices tumbled to ¥190.3 on June 5, the lowest since September 2009.
Auto recovery
The auto industry, which represents 65 per cent of India's rubber demand, is poised for a recovery and margins of tire companies will continue to expand, Pendharkar said. Profit margins of Apollo Tyres are seen between seven per cent to nine per cent this year, he said. Pendharkar has a 'buy' rating on the company. Apollo reported a net income margin of 7.6 per cent in 2013-2014, according to data compiled by Bloomberg. The shares dropped 1.1 per cent to Rs 190.70 in Mumbai, paring gains this year to 78 per cent.
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 per cent 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 per cent in 2015 from near the slowest in a decade, according to a Bloomberg survey.
Consumption in India will climb 4.1 per cent 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.
