Last Updated : 29 July 2011 at 13:35 IST
AHMEDABAD (Commodity Online): The RBI rate hike may not be the last one for this year, signalled India’s Finance Minister Pranab Mukherjee recently. This is a deadly dose of chill down the Indian industry’s spine. While experts argue that rate hike alone cannot tame the inflation, the government is running out of a breathing space. Needless to say, an end to interest rate regime would be in sight when India’s supply chain system is overhauled on an unprecedented scale. But it is a time consuming process.
The effect of the interest rate hikes will have telling effects on India’s industry landscape.
One of the worst-hit industry would that be of tyre manufacturing.
Tyre manufacturers will have to keep a low inventory of natural Rubber as credit situation would tighten making it difficult for them to source inventories for a longer haul.
It will also put them in jeopardy as they have to pay back higher interest rates on accrued credit, forcing them to sell finished goods at relatively low margins.
The practise being unsustainable may slowdown the industry for a while.
So, how would this affect natural rubber?
“The natural Rubber markets have not crashed.” said C.P.Krishnan, Wholetime Director, Geojit Comtrade.
India has an advantage here. Given its huge domestic demand driven by growth, the tyre markets would have a minimum momentum, so it would help the natural rubber industry.
“Further, they (tyre manufacturers) have better warehousing facilities and they don’t sell products below a stipulated rate.” He pointed out.
This could possibly lend an upside to the industry.
“But, if the Crude Oil crashes, it can be a game changer.” C.P. Krishnan cautioned. “The demand for synthetic rubber can then go up.”
This may not bode well for natural rubber, but the if-factor is still in the possibility realm.
As published in: http://www.commodityonline.com/news/RBI-rate-hike-tyre-industry-and-natural-rubber-prices-41194-3-1.html
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