Growth in Chinese tyre sales in the Indian replacement market has slowed down post demonetisation, as the business is generally conducted only in cash. According to industry representatives, Chinese tyre sales, which rose by about 40 per cent in the Indian replacement market between April and October 2016, saw a de-growth of around 17 per cent after the note ban.
Indian tyre makers will have breathing time till the second quarter, as Chinese tyres may not enter the market.
Automotive Tyre Manufacturers' Association (ATMA)'s Director General Rajiv Budhraja said Chinese tyres are largely traded in cash, as they don't do any billing to avoid duties and taxes. ATMA represents eleven large companies in India, which collectively account for over 90 per cent of the country's tyre production,
Budhraja said imports are down to a trickle, as arrivals have been dampened intentionally to escape the glare.
Demonetisation also led to uncertainty in exchange rates, on the basis of which the landed cost is worked out. This uncertainty has further suppressed the business, as it will impact importers and dealers..
Cross border movement of the goods is also slow since fleet-owners are not doing long distances due to the cash crunch, impeding the entry of Chinese tyres into the replacement market, especially in the truck-bus radial segment.
Budhraja estimates that between April and October 2016, on an average around 120,000 Chinese tyres would enter the market every month, as against 100,000, a year ago. Post demonetisation, supplies are back to the 2015-16 level.
Gaurav Kumar, chief financial officer, Apollo Tyres, said that the demonetisation announcement would have some impact on tyre sales, particularly in rural markets as they typically happen in cash. For several other industries, this would have a short-term impact.
Budhraja expects the slowdown in Chinese tyres imports to continue for the first six months of 2017.
While this may be a good news for Indian tyre makers at least in the short-term, the pressure will rise once things ease down, says a senior official at a top tyre maker.
Currently, though the entry of tyres into the market is subdued, importers' inventories are piling up and once things ease, they will enter the market aggressively and disrupt trade.
The only solution is to impose anti-dumping duty on Chinese tyres, which the industry has been insisting on for over three years now. According to Budhraja, the government is yet to act on the industry's petition, and no action has been taken so far.
Chinese tyres are getting dumped mainly in the replacement market, which is estimated to be around 9,00,000 tyres a month, he added.
A major chunk is entering the truck-bus radial (TBR) segment, which is around 4,00,000 tyres a month. Market leader Apollo Tyres sells about 1,00,000 tyres, while Chinese products are able to achieve 1,50,000 units.
China is dumping its tyres, which are priced 40-50 per cent lower than Indian ones, thereby affecting the domestic industry. Over the past two years, Indian tyre prices have come down 10 and 15 per cent and are still climbing down. Despite that, Chinese ones are about 30 per cent cheaper.