Surging Natural Rubber Prices Threaten Tyre Manufacturers' Profit Margins

The skyrocketing prices of natural rubber, driven by a supply-demand imbalance, could significantly impact the profitability of tyre manufacturers. CRISIL Market Intelligence & Analytics reports that the current prices are substantially higher than the average trend over the past decade and are expected to remain elevated until at least 2025.

Tyre manufacturers are bracing for a challenging period as natural rubber prices have soared by over 33% year-on-year in the first five months of this fiscal year, according to CRISIL Market Intelligence & Analytics.

The domestic price for natural rubber reached an average of Rs 238 per kg in August, significantly surpassing the decade-long trend. This surge is attributed to strong demand coupled with a restricted supply chain.

CRISIL's Director of Research, Pushan Sharma, highlighted that between fiscals 2011 and 2023, global rubber production grew by 35% while demand rose by 40%, creating a supply crunch. The imbalance is likely to persist, keeping prices elevated and affecting tyre manufacturers' margins beyond fiscal 2025.

Associate Director of Research, Mohit Adnani, added that the deficit in the natural rubber market is expected to triple in 2024 due to smaller tappable areas and lower yield, compounded by increasing demand. The last significant spike in rubber prices occurred in 2011, driven by a post-financial crisis recovery and supportive monetary policies.

Since late 2023, the global shortage of natural rubber has severely impacted the industry, especially given robust demand from the automobile sector and other major consumers. This price upcycle, CRISIL noted, is distinct from previous trends and poses new challenges for tyre manufacturers.

(With inputs from agencies.)