The Indian automobile industry is amongst the 5 biggest in the world. The increase in the number of passenger vehicles has meant that the tyre industry has also seen a gradual growth in its demands. And so it has, becoming one of the most competitive industries in the world. The emergence of new technology, ultra-modern production facilities and availability of raw materials means the sector is poised to grow further. If we talk numbers, as per a report, in 2011-12, the Indian tyre industry recorded a turnover of Rs 43000 crore, producing 1254 lakh tyres amounting to 15 million metric tons. These astounding numbers suggest that the India has become a haven for the tyre industry. The industry turnover of Rs 50000 crore (Source: Automotive Tyre Manufacturers’ Association ATMA ) in 2014-15 clearly shows that the industry is promising for Indian growth story. However, all isn’t as it seems.
The Impact of Imports
As the demand for tyres increased, a surge in import of Chinese tyres was witnessed. Demand from the replacement segment dominates the Indian tyre market contributing about 56% of demand, in terms of units. The major reason for high replacement share is due to the fact that the number of registered vehicles/annual sales remains at about 10x at close to 20 crore registered vehicles (industry estimates) vis - à - vis ~2.4 crore annual vehicle sales. Bus and trucks radial tyres are responsible for 55% of the industry’s total revenue.
However, the share of Chinese imports of such tyres grew from 40% in financial year 2014 to an estimated 92% in financial year 2017. Lower pricing due to overcapacity, slower demand in China has to lead to dumping of these tyres in markets like India and the U.S. These Chinese tyres cost up to 25% cheaper than the domestic tyres. This meant the domestic market was suffering immensely.
Introduction of Anti-Dumping Laws
In the 3rd quarter of 2017, the Finance ministry of India imposed a definitive anti-dumping duty on new Chinese radial tyres (including tubeless) used in buses and lorries/trucks. The decision, based on the recommendations of the Directorate General of Anti-dumping and Allied Duties, will impose Anti-Dumping Duty in the range of $245.35 - $452.33 per tonne on the import of a certain type of tyres in the heavy vehicle segment.
The primary reason behind this was to save the interests of domestic manufacturers in India. An application was filed by Automotive Tyre Manufacturers Association (ATMA) on behalf of Apollo Tyres Ltd, J.K.Tyre Industries Ltd and Ceat Ltd. The move has been welcomed by most Indian tyre manufacturers who see this as an opportunity to grow.
The Anti-Dumping Duty has been met with a hugely positive response from the domestic industry. Indian tyre brands like Apollo and JK Tyres are bound to see a jump in the revenues earned by about 30%. Since the anti-dumping duties mean that the quantity of tyres being imported from China shall decrease, it is clear that tyre manufacturers in India will see a huge turn up in business. But the imposition of anti-dumping duty on TBR tyres will directly benefit big players like JK-TYRE, APOLLOTYRE and MRF which collectively hold around 70% of this market in India.
However, with the increased demands and lack of a cheaper alternatives, the prices are bound to go up. According to ATMA, as much as 60% of the TBR tyres imports are done through small operators and traders. With anti-dumping duties the price differential between the Chinese and domestic tyres will come down drastically due to imposed anti-dumping duty and the Chinese tyres imports will come down.
But a domestic intensive market will also assure better quality of tyres in the industry.
In the long run, this move should help the domestic tyre industry to grow. But at the same time, government policies and the change in global markets cannot be predicted.So what impact does this move have, only time will tell.