MUMBAI (Reuters) - Tyremaker Ceat Ltd is planning to hold product prices through the next two months in the face of a global rally in rubber, a key input that makes up over 40 percent of the cost of a tyre, a senior official said.
The benchmark rubber November contract on India’s National Multi-Commodity Exchange (NMCE) on Wednesday hit a record high of 19,760 rupees per 100 kg, handsomely beating the previous 15 July high of 19,375 rupees. “The monsoon has been a little bit extended and therefore markets are looking slightly worse than usual. So price increases are looking a little difficult in the short term,” Anant Goenka, deputy managing director, told Reuters on Wednesday.
Ceat, India’s fourth largest tyremaker, hiked prices by 3-4 percent in the last quarter that effectively rounded up a 15 percent jump from the year-ago quarter, but still not enough to cover margins adequately.
Ceat’s second quarter net profit took a 75 percent knock on year to 152.7 million rupees, when galloping rubber prices defeated a rise in sales.
“Our input price has gone up by about 40 percent primarily led by rubber, which has gone up by nearly 100 percent over last year”.
Ceat is grappling with the price surge through capacity additions and volume increases, and ramped up capacity at its Nashik plant in Maharashtra by 1,000 tonnes per month.
Its 6 billion rupees, 130 tonnes a day plant at Halol in Gujarat, is expected to be commissioned in a month’s time.
Ceat wants to relocate its parent plant in Bhandup, Mumbai, which accounts for half its production, outside the city.
“We need to set up another plant first, which will take at least another year-and-a-half to two years. Only once that is done can we think of moving out of Bhandup,” he said.
“We have acquired some land in Ambernath and are exploring that as an option of setting up a new plant,” Goenka added.
Ceat had imported substantial amount of rubber earlier this year when there was a wide gap between global and local prices. However, the current rubber rally is pretty much global.
Spot price in Thailand, a key destination for Indian importers, has risen nearly 37 percent so far in 2010.
“Imports are not looking viable as you have a 20 percent duty on rubber imports right now, we are going to be picking up primarily from the domestic market.”