We are only conducting Seminars to make Professional Traders. Join Now for Bangalore, Hyderabad and Chennai Seminar.

Latest Rubber Industry Update to Make Judicious Decision

Rubber prices are sliding globally and as a net result the Stocks related to rubber industry are getting rerated. The stocks related to tyre industry namely JKtyre, Apollo tyre and MRF are riding high as they are getting raw material at lower costs. Below we are providing the latest scenario prevalent and thereafter we will be updating through the comments below this post to provide you with latest happening in this segment.

In the recent past, global rubber prices have gone into a downward spiral with increasing concerns on demand-supply mismatch. The benchmark Bangkok RSS-4 rubber prices have declined from $2.2/kg in March to ~$1.7 levels. These are five-year low prices. Recent news flow of sale of 200,000 MT of rubber stocks by the Thailand government has caused more panic in the existing market. On the demand side, global studies and major manufacturers commentary suggests automotive tyre demand will grow ~4-5% in volume terms. This would be split with demand rising well in the North American region while Europe and Japan would remain sluggish.

Emerging markets like India and China are expected to see a moderate recovery. From an Indian perspective, domestic tyre manufacturers saw another quarter of favourable raw material prices mostly as natural rubber (NR) prices saw a decline to | 132/kg from | 148/kg in March in the domestic market. Domestic rubber supplies would have ebbed in the monsoon season, however, due to lower tapping. However, in the coming periods, as tapping increases prices could remain under pressure as supply increases domestically.

The recent crude price decline (~9% QoQ) may cause a lag decline in crude linked derivatives like synthetic rubber and nylon tyre cord. Rubber contributes ~50% in volume terms and ~55% of the total raw material cost for tyre companies, depending on the product mix. Crude-linked derivatives constitute another 20-25% of the raw material basket for tyre companies. Thus, tyre makers are in a unique sweet spot as commodity prices, unlike historically, are reducing without a demand collapse. Hence, this is providing companies opportunities to focus more on bottomline growth vis-à-vis pace of topline growth.

Sector outlook Raw material outlook: Rubber price fall in a traditionally weak quarter (Q1) augurs well for OEMs as risk of price increases come down significantly for the rest of FY15E. The increase in domestic tapping from the Kerala region and increase in global supplies as Thailand inventory comes into the market may keep prices under control. Going ahead, we believe RSS-4 prices would continue to remain at ~$1.8/kg (Bangkok), ~| 135/kg in the domestic market.

On the crude linked derivatives side, like synthetic rubber/carbon black prices are also expected to witness declines albeit in a lagged manner owing to the recent fall in Brent crude prices to below $100/bbl. Pricing discipline: On the pricing front, so far, even with the slowdown and natural rubber price corrections, the pricing discipline shown by the tyre industry in the replacement market has been strong. On the OEM side, the pricing contracts are on a quarterly or bi-annual basis, thereby resulting in price reductions in the OEM segment as the benefit of favourable raw material prices gets passed on. Thus, the increase in OEM demand would have led to higher utilisation levels but would be offset by a decline in terms of pricing.

Demand outlook: Demand recovery is showing some green shoots of revival with the M&HCV, PV (-4%, ~3% YoY YTD growth) OEM sales showing sings of revival even as the 2-W segment continues to remain strong (~16% YTD YoY growth). This augurs well for FY15E, FY16E. The pick-up in tyre demand from OEs may be more pronounced from H2FY15E onwards. We expect the overall auto industry to grow 9-11% for FY15E. Replacement demand has mitigated the overall weakness in OE demand in FY14E. We believe overall industry share of replacement, OEM would move to 65%, 35% from ~70%, 30%, respectively.

As per our analysis, for every | 10 change in natural rubber prices (other things remaining constant), EBITDA margins could likely change in varying degrees from 100 bps to 400 bps, clearly showing that Balkrishna Industries would benefit the least from a rubber price fall. On the earnings front, JK Tyres is expected to see ~30% change on every | 10 change in natural rubber prices.

As per the study conducted by the International Rubber Study Group, natural rubber production has doubled from the levels in year 2000. In the past 14 years, rubber production has been surplus for six years. However, the supply demand surplus has not exceeded two years until the year 2013, which has seen increasing surpluses. Also, in 2014, the same situation is likely to persist. Furthermore, for the next 15-18 months, natural rubber prices are likely to remain muted as supply outstrips demand.

Bookmark us for daily free Indian share tips and make money like professionals using our daily hot tip which finishes by 11:30 AM

Most Visited Stocks - Click to Visit Link


"First off all, I just want to say that your service is excellent – by far the best tips service I have encountered and quality of your Jackpot tips is really good and noticed that now I am getting daily profit. I can say that it makes a difference to choose the correct tips provider and it was my luck that I stumbled on your website."

- Rajesh


We Compliment you for becoming a part of mega family of more than 12 Lakh Smart Traders who are getting benefitted with our services worldwide. We assure You that we will deliver more than what we promise. Do remember to leave questions and Feedback. Your Success is Guaranteed with us!

You can Contact us through Contact Box provided on website or You can call us at 09358493584 or Email at info@indian-share-tips.com. You can make Online Payment through Payment Gateway installed on the website as we offer you the highest standard of security currently available on the Net so as to ensure that your online transaction is Private, Safe and Secure.

We Teach and Train our Clients First Before Joining as we want to make sure that clients trade in market as a thorough professional. Charges if any being paid by you are for the teaching and training and Trade Ideas given are provided free with the teaching and training and we do not charge any amount for it. If you can not join the seminar; you can learn from us via mobile and email. Your Joining with us is purely for educational purpose. Your joining is subject to acceptance of our terms and Disclaimer for which link is given on the site at bottom right hand corner. Wherever the word tip is written; it implies an idea which is of informational value and is not suitable for trading. We are conducting Seminars to make Professional Traders. Join Now for Bangalore, Chennai and Hyderabad Seminar. Call Now at 09358493584.
Chart> Nifty A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 0-9