India May Cut Rubber Import Duty as Demand Soars

India May Cut Rubber Import Duty as Demand Soars
Rising incomes in the world’s second-most populous nation may help more than double annual car sales to 3 million by 2015, according to the government. Photographer: Kuni Takahashi/Bloomberg

India, the fourth-biggest producer of natural rubber, may allow imports of as much as 100,000 metric tons at a lower duty to meet surging demand for tires as rising incomes boost car sales, Trade Secretary Rahul Khullar said.

The finance ministry may make a decision after the end of the current session of parliament which runs to Dec. 13, Khullar said in an interview in New Delhi yesterday. The trade ministry has recommended imports at a concessional rate for a maximum of 100,000 tons and tax changes on tire imports, he said, declining to elaborate. Rubber imports are taxed at 20 percent.

Rising incomes in the world’s second-most populous nation may help more than double annual car sales to 3 million by 2015, according to the government, boosting demand for natural rubber. Prices in India reached a record last month on concern that the low-output season in Southeast Asia will worsen a deficit.

“Domestic production is not going to increase dramatically, demand is going through the roof because factories are being set up to make radial tires,” Khullar said. “The pressure on prices will continue tight through next year, until you resolve the availability issue.”

Bridgestone Corp. and its Indian rivals including Apollo Tyres Ltd. and MRF Ltd. are investing $3 billion in plants to meet demand that’s forecast by Automotive Tyre Manufacturers’ Association to expand 10 percent to 106 million tires in the year to March 31. Rubber makes up 42 percent of raw material costs, according to the manufacturers’ group.

Stocks Rally

Tire makers’ shares jumped in Mumbai trading. Apollo gained 2.1 percent to 67.5 rupees, after losing 7.7 percent last month. JK Tyre & Industries Ltd. added 1.5 percent to 147.25 rupees and MRF climbed 2.2 percent to 8,028.85 rupees. JK shed 11 percent in November and MRF lost 15.6 percent of its value.

Futures on the Tokyo Commodity Exchange reached a 30-year high of 383 yen on Nov. 11 as rain in Thailand, Indonesia and Malaysia, the top three growers, interrupted tapping and lowered production. May-delivery rubber on the Tokyo Commodity Exchange gained as much as 1 percent to 363.8 yen per kilogram ($4,351 a ton) before settling at 363.5 yen.

Passenger-vehicle sales in India in October increased 38 percent from a year ago to a record 231,957 units, the Society of Indian Automobile Manufacturers said on Nov. 10. About 1.4 million units were sold in the April-October period, compared with 1.53 million for the whole of the last fiscal year, according to the group.

‘Stagnant Production’

“Demand-supply gap has been widening over the past two to three years because of stagnant rubber production and rising car sales,” said Vaishali Jajoo, an analyst with Mumbai-based Angel Broking. “There will be imports in the coming years if there’s no fresh supply and the auto sector continues to do well.”

She has a “accumulate” rating on Apollo and a “buy” recommendation on JK Tyre.

Imports in the year to March 31 may exceed 200,000 tons, from 170,048 tons a year earlier, tire makers association’s Director General Rajiv Budhraja said on Nov. 11. Production dropped for a second straight month in November after rain hindered tapping in Kerala, India’s top producer, state-run Rubber Board said today.

Output totaled 88,500 tons, compared with 93,500 tons a year ago, it said. Imports in the eight months ended November totaled 143,468 tons from 139,321 tons, as tire companies stepped up purchases to bridge the shortage, the board said.

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