Tyre stocks get punctured

When monsoon comes calling in Kerala, the first to be affected in rubber. This is a lean period of cultivation and this leads to price of rubber soaring. The natural rubber price has breached the Rs 150-mark (per kg) for the benchmark RSS-4 grade after hovering around Rs 124-136 for the first five months of this year. The rubber price also it a 3-month high on the Tokyo Commodity Exchange. The adverse weather conditions and the decision of Thailand, the largest rubber cultivator in the world, to increase domestic consumption, pushed up the prices further. This price rise comes after a span of two years of low prices. But many in the industry feel that these high prices might not sustain as global demand could peter out.

Any hike in rubber prices has a direct impact on tyre makers and that explains why Ceat today hit a new 52-week low at Rs.921.45. MRF fell 2.5%, Balkrishna Inds, Goodyear, all tyre stocks are down in the red. The tyre and allied sector has fallen by 2.5%.

Many brokerage houses have downgraded this sector stocks as they feel subdued demand, capacity expansions, increase in debt levels and now a rise in raw material prices; all could impact the margins of the companies in coming months.