India Tiremakers Seek Rubber Tax Cuts

India Tiremakers Seek Rubber Tax Cuts on Price Rise (Update1)

April 21 (Bloomberg) -- Apollo Tyres Ltd., India's biggest tire manufacturer by market value, and other local makers are seeking a reduction in rubber import taxes because of an 18 percent increase in prices for the raw material this year.

"The government has to intervene because this commodity is going through the roof," Neeraj Kanwar, Apollo's managing director, said in an interview yesterday. "There is no way I can absorb such huge jumps."

Apollo plans to increase prices about 7 percent as early as next month to absorb the rise in rubber, which has been caused by growing demand in China and reduced production in Thailand. Tiremakers have also asked the government to double the import duty on tires to 20 percent, according to a letter sent to Prime Minister Manmohan Singh by an industry group.

The "margins of tiremakers should be impacted for the next two quarters even if they increase prices," said Surjit Singh Arora, an analyst at Prabhudas Lilladher Ltd. in Mumbai.

The Automotive Tyre Manufacturers' Association last month asked the government to cut the import tax on rubber to 7.5 percent from 20 percent and to allow duty-free imports of at least 200,000 metric tons, said Kanwar, 38, who is the group's chairman. It also asked for a ban on futures trading in rubber till "volatility" declines and the removal of a special tax on the commodity.

Government Meeting

The association, which represents nine tiremakers, has met Anand Sharma, minister for commerce and industry, and is waiting for a meeting with the prime minister, Kanwar said yesterday in an interview in Gurgaon, where Apollo is based.

The government has to balance the demands of the tire industry while taking care not to hurt local rubber growers, Ashok K. Mangotra, additional secretary in the ministry of commerce and industry, said in a phone interview from New Delhi.

"No decision has been taken so far and we are working on it with a lot of urgency," said Mangotra, declining to provide a timeframe for a resolution.

Raw materials account for 70 percent of the production cost of tires, according to the manufacturers' group. Rubber contributes 42 percent to the raw material cost.

Rubber futures may rise to as much as 200 rupees ($4.50) a kilogram, while the price would need to drop to 120 rupees "for me to get a respite," Kanwar said.

Futures Rise

April-delivery rubber futures on the National Commodity & Derivatives Exchange Ltd. in Mumbai gained 0.6 percent to 169.22 rupees a kilogram yesterday.

Rubber prices have risen about 18 percent since the start of 2010, based on the benchmark futures contract on the Tokyo Commodity Exchange.

Apollo Tyres gained 1.9 percent to close at 76 rupees in Mumbai trading.

To boost profits, Apollo plans to sell higher margin radial tires for passenger cars, trucks and SUVs, Kanwar said. A new factory near India's southern city of Chennai has started operations and will reach capacity of 500 tons a day, or 6,000 radial tires for trucks and 16,000 for passenger cars, in the quarter ending March 31, 2011, Kanwar said. It will reach half that capacity by September, he said.

Apollo, set up in 1975, gets about 85 percent of its sales from customers replacing their old tires, and the remainder from selling directly to vehicle makers, the company said in a presentation to investors in March.

Tires for trucks contribute 56 percent of sales, car tires make up 32 percent and tractors and other vehicles account for the remainder, it said.

To contact the reporter on the story: Subramaniam Sharma in New Delhi at ssharma@bloomberg.net.