- 10 Sep 2024
- ICICI Securities
KEY RAW MATERIAL PRICES WITNESS A DECLINING TREND FROM RECENT PEAKS
News: Natural rubber prices have declined by ~7% to ₹230/kg from the peak of ~₹250/kg reported in Aug’24. Similarly, brent crude prices are down by >10% from $ 80 levels to present $ 70/barrel levels. This is amidst some tyre companies announcing fresh price hikes (up to 2%) to counter the rising raw material prices.
Views: Natural Rubber and crude derivatives are key raw material for manufacturing tyres, accounting for ~70% of the total raw material cost. Natural rubber is the largest component accounting for ~50% of RM costs. Rubber prices saw an unprecedented surge from ₹189/kg in Q1FY25, reaching a peak of ₹250/kg reported in Aug’24, which has dented gross margins of tyres companies in Q1FY25 and expected to further impact profitability in subsequent quarters. However, the recent decline in rubber & crude prices augurs well for tyre manufacturers, as it is expected to provide relief in H2FY25. We have a positive view on JK Tyre and Apollo Tyes in our coverage universe.
Impact: Positive