Rubber Price Surge Impacts Tyre Makers: CRISIL

New Delhi, Sep 26 (PTI) Inflated natural rubber prices which are way above the trend in the past decade could impact the profitability of tyre manufacturers, according to CRISIL Market Intelligence & Analytics.

Tyre makers are headed for a rough patch as the price of natural rubber has surged more than 33 per cent on-year in just the first five months of this fiscal amid strong demand and crunched supply, which could strain profitability, CRISIL said in a statement.

The domestic prices of natural rubber closed in August at Rs 238 per kg on average, way above the trend in the past decade, it added.

CRISIL Market Intelligence and Analytics, Director-Research Pushan Sharma said between fiscals 2011 and 2023, global rubber production grew 35 per cent while demand expanded 40 per cent resulting in a supply crunch thereby resulting in higher prices.

"With further rise in demand and restricted supply, the prices of natural rubber are expected to remain elevated, impacting the margins of tyre manufacturers well beyond fiscal 2025," CRISIL Market Intelligence and Analytics, Associate Director- Research Mohit Adnani said.

The deficit in the natural rubber market is expected to triple in 2024 as smaller tappable areas and lower yield, along with a potential increase in demand, test the supply side, he added.

The last time rubber price breached the Rs 200/kg mark was in 2011, propelled by demand recovery after the global financial crisis, aided by the accommodative stance of the US Federal Reserve and other central banks.

Prices had logged a compound annual growth rate of 101 per cent between 2008 and 2011. However, the three-year surge did not sustain and for a decade thereafter prices remained subdued below Rs 150 per kg on average.

"Now, since the end of 2023, prices have shot up again amid a raft of challenges. The tight supply of natural rubber globally has cast a long shadow on the industry even as the steady expansion of the automobile industry and other major consuming industries keeps demand healthy. And this upcycle is distinct from previous ones," the statement said.