Covid-19: Tyre Companies Face Rising Inventories, Plan Production Cuts

With the demand for tyres vanishing during the two weeks of lockdown so far, the inventory with tyre manufacturers has risen to one month of production, the highest ever, and has left the manufacturers working on strategies to reduce stockpiling with production cuts.

The lifting of tyre stock from factories and transporting the same to auto manufacturers came to a grinding halt after the government announced a 21-day nationwide lockdown effective March 25. Since then, tyre production has continued, albeit at a minimum capacity of 20-25 per cent, with no offtake. As a result, the entire quantity of tyres is stockpiled at factory premises. In fact, tyre manufacturers are facing difficulties in storage space now.

“Our tyre inventory has gone up due to the nationwide lockdown, so we would be working to reduce it going forward,” said a senior official with J K Tyre.

Other tyre manufacturers are also face similar difficulties - growing inventories with no offtake.

The slump in tyre demand has nullified the benefit of a sharp decline in natural rubber prices. The spot rubber prices in Kochi market, polled by the ICEX, have reported a decline of 7.1 per cent in the last one month are currently trading at Rs 123.3 a kg.

“Rubber prices in domestic market are following the global move. With global lockdowns due to Covid-19 spread reducing tyre demand from the auto sector, rubber prices have slumped. Also, a decline in crude oil prices has weakened prices of synthetic rubber and natural rubber. But, weak demand would continue to keep its prices under pressure,” said Ajay Kedia, managing director, Kedia Commodity.

Meanwhile, activities in the Kerala rubber market have come to a standstill due to the lockdown with farmers citing lack of labour as a reason.

Moreover, the government’s decision to allow the rubber/latex industry to produce gloves failed to make any meaningful impact as transport services are lying shut in Kerala.