Tyre stocks on a roll

Tyre stocks have been a roll for this entire week. Almost all tyre stocks across the board have been hitting new highs consistently – Apollo Tyres, Ceat, JK Tyre, Balkrishna and MRF, all were on a new high yesterday and today, they are seeing some amount of profit booking though they remain in the green.

The reason for this cheer on tyre company counters is because rubber prices are at historic lows; this affects the earning margins of tyre companies directly as almost 60% of its total cost comprises of rubber costs.

Even looking ahead, most in the industry expect prices to remain low as there is a huge inventory pile-up in all rubber making countries combined with excess supply coming into global markets as Thailand is releasing inventory held to support farmers.

In the Indian markets, apart from the advantage of lower rubber prices, Chinese imports in the replacement markets have shrunk, so much so that Indian tyre makers have hiked prices by 8% since January this year. Thus for tyre companies, low raw material cost and price hikes means better bottomlines.