Though major companies say they are passing on the benefits of lower natural rubber (NR) prices to the customers, there are a number of reasons behind these cuts. The slowdown in the demand for tyres from the original equipment (OE) segment has compelled companies to lower price tags. Slowdown in automobile production and sales had a cascading effect on the tyre industry as OE buyers, a major segment, go slow on their purchases. This has affected tyre firms, leading to high inventory levels. Firms now want to clear off this inventory, which is one of the main reasons for the price cut. Tyre industry sources told Business Standard that companies had adopted a three-pronged strategy to tackle the situation. First is the reduction in prices. Second is giving discounts to distributors and the last, cutting production.
Satish Sharma, chief, India operations, Apollo Tyres told Business Standard the company has 'moderated' production. "It is just a part of our production strategy, we have not closed any of our plants, but moderated production according to market needs," he said. He added that demand in all segments is sluggish. However, demand in March seems to have improved marginally over that in January and February.
According to one industry expert who spoke to Business Standard, it is the huge inventory with companies that is reflecting on tyre prices, and not the reduction in NR prices. The shortage of NR is a major concern for the industry now.