Tyre manufacturers who had sought changes in the import duty structure of natural rubber due to recent price escalation and lower availability concerns, are looking forward for some correction with the start of the peak season in October.

From Rs 150 a kg in March this year, RSS-4 prices have moved up to Rs 180 levels in July and remains Rs 20 higher than the international prices. While the Rubber Board estimates a supply shortage of 75,000 tonnes for the financial year 2010-11, the Automotive Tyre Manufacturers Association finds the gap to be around 1.76 lakh tonnes.

“For the past 10 years, India has remained at the fourth slot as far as global production is concerned and it is likely to be overtaken by Vietnam in two years. India’s production does not project a growth picture because there has been no substantial increase in land under cultivation; neither have efforts to produce rubber in the northeastern states borne desired results. On the other hand, tyre consumption is growing faster with India climbing to the second slot after China. Seeing the availability issue in a broader picture, we had approached the government seeking changes in the import duty structure,” said Rajiv Budhraja, director general of the Automotive Tyre Manufacturers Association.

Tyre manufacturers had approached the government to allow duty-free import of at least 200,000 tonnes of natural rubber and reduction of import duty to 7.5 per cent from 20 per cent. They also want the doubling of customs duty on imported tyres to 20 per cent to help domestic manufacturers.

However, rubber growers, find that reduction in import duty may lead to dumping of cheap natural rubber from Asean countries and a drastic fall in prices in the domestic market. In July, India exported 4,347 million tonnes of natural rubber, while importing 56,208 million tonnes.

For the past few weeks, mixed reports of the government agreeing to tyre manufacturers’ demands and then reversing the decision has been doing the rounds.

According to Binoi Kurian, director, marketing of Rubber Board, last week, the commerce ministry decided to go by the expert panel recommendation that seeks to retain the import duty at 20 per cent, but a maximum ceiling of Rs 20.45 be fixed on the import for 100,000 tonnes of natural rubber. This import should be made in four tranches. “Initially, 25,000 tonnes can be imported and considering the supply-demand situation, the remaining quantity will be brought in,” he said. However, the Automotive Tyre Manufacturers Association says that it has not received any communiqué from the government in this regard.

While the tussle between the rubber growers and consumers was on, prices have remained quite volatile.

“For the past two to three weeks, domestic prices have been volatile. At the futures market, from a near-month peak of Rs 180 per kg on August 4, prices fell to a low of Rs 167 on August 20 when reports had flown in that the government has reduced the import duty from 20 per cent to 7.5 per cent. However, later the prices rose and on August 26, it hovered around Rs 175,” said Anand James, chief analyst, Geojit Comtrade.

Spot prices, which had touched a high of Rs 185, have been ruling higher than the futures prices, but started moving in tandem by the last week of August.

“With more than a month for the peak season to start, prices can return to Rs 180 levels, but a rally is unlikely. By October, prices shall ease and remain around Rs 165 levels,” he said.

However, tyre and non-tyre manufacturers cannot delay procurement till the season starts because the demand is constant and robust. Manufacturers have raised tyre prices by around 15 to 17 per cent since July owing to high raw material prices, as well as general factors such as inflation. “Manufacturers will wait to see the extent of correction before deciding on a further hike. However, need be, a hike in tyre prices cannot be ruled out,” said Budhraja.