Tyring Times

Aslowing global economy and a glut in supply of major commodities have resulted in a staggering increase in protectionism, and more and more countries are being accused of working overtime to restrict trade instead of opening up their borders. The rising discomfort with excessive capacity and falling demand has also hit India in more ways than one. So much so, that while domestic tyre companies are protesting against a supposed invasion by cheap Chinese products, the US is adopting trade-restrictive measures to stop flooding of its markets with Indian tyres.

According to a report by London-based think tank, Centre for Economic Policy Research, 539 cases of protectionism were reported in the first 10 months of 2015 alone. Moreover, the top 10 nations resorting to such measures were all G20 members, with India at the second spot - behind the Russian Federation - with 55 instances.

The Indian tyre industry claims that imports of truck and bus radials from China have gone up by 68 per cent from 780,000 units in April-October 2014/15 to 1.31 million units in the corresponding period of the current fiscal. Allegations are also rife that radials from China have increased by a staggering 600 per cent in the past two years, largely due to a 67 per cent surplus capacity there.

But what weakens the script for the Indian industry is that it is under investigation in the US for possible dumping of off-the-road tyres. "In 2007, Titan won anti-dumping and countervailing duties on OTR tyres from China, but over the past few years there have been a number of companies putting wheels into the tyres to get around the duties," said Morry Taylor, Titan CEO and Chairman, the main complainant in the US. "This has become a large problem because some overseas operators have actually advertised on their websites how to beat duties. So, our petitions address Chinse tyres that enter mounted on a wheel or rim. We have also added India and Sri Lanka to this new action."

While the charges being levelled against Indian tyres in the US are similar to those being raised against Chinese tyres in India, domestic companies fear their recent and forthcoming investments may be jeopardised by the Chinese onslaught.

What is more worrisome is that China is taking away the lucrative replacement market where margins are higher. The imports in this segment have grown from under 20 per cent in 2013/14 to around 40 per cent this year. At the same time, China's share in imported truck and bus radials has also gone up from 40 per cent to 89 per cent.

"Many countries around the world, from South Africa and Brazil to Colombia and the US, have imposed anti-dumping duties on Chinese tyres. This has narrowed down the options for China to export their excess capacity, which is substantial. India is the only country to show growth and has emerged as a ready market," says Rajiv Budhraja, Secretary General at All India Tyre Manufacturers Association. "Unfortunately, this is happening at the most inappropriate time. The heavy truck and bus segment has just started growing after four years of decline but rising imports would mean the domestic industry will not enjoy the benefits."

Yet, the charges do not stand scrutiny. Prices of natural rubber have been benign - falling 62 per cent in five years - and the financial performance of all major tyre companies - MRF, JK tyre, Ceat and Apollo - has been good in the past one year. Barring Kesoram Industries, results have never been better, and there is little to suggest a dramatic squeeze in profitability. "Prices for key raw materials (natural rubber, steel and crude) for tyres are at historic lows and that has led to better margins. But revenue growth has slowed when it should have gone up," counters Budhraja, adding: "Compared to other sectors, the tyre industry looks healthier, but we don't want it to get into a comatose state before we start treating the malaise."

The largely unorganised transport sector however, feels domestic companies have not passed on the benefits of low rubber prices adequately and are inflating import numbers to avoid competition.

"The fact is truck and bus radial imports have dropped 48 per cent in November 2015, against peak imports in June. Imports were even lower for the calendar year with a dip in the monthly average by 60 per cent over peak levels," says S.P. Singh, Convenor, All India Tyre Dealers Federation. "On the other hand there is a massive cushion in prices of domestic tyres as companies have not passed on the full impact of decline in prices of natural rubber and crude oil. If they do so, prices would come down by 20-25 per cent, which will put pressure on overseas brands. Imports would come down automatically."

The tyre industry has long battled perceptions of operating as a cartel. An unfavourable verdict from the US at a time when it is crying for in-house protection will not do its image any good.