Tyre makers have jacked up prices of new tyres, citing that the surging input costs have forced them to take the decision.
According to them, the cost of raw material has jumped 25% in the past six months.
“Prices of tyres have been affected by a number of factors,” said the spokesman for General Tyre and Rubber Company.
These factors included “global increase in raw material prices, supply chain disruption because of Covid, depreciation of Pakistani rupee and increase in utility prices”, he added.
The pandemic had disrupted the global supply chain, the spokesman said, adding that freight charges of containers had also shot up because of shortage.
“Another major reason is the depreciation of Pakistani rupee against foreign currencies,” he said.
The industry was also compelled to use expensive alternative fuels due to gas load-shedding, which increased the utility expense.
“Imports are currently down because of volatility in the currency market and the government’s demand for 100% advance payment on opening letters of credit,” he added.
Regarding the illegal channels, the spokesman said that smuggling should never be an option to meet demand of a country.
“It cripples the local industry and cheats the government in legitimate revenue, which should not be tolerated,” he maintained.
About supply and demand, he said that the industry was fully capable of supplying tyres to the market.
“The current gap is due to heavy under-invoicing and smuggling, which are the reasons why the industry is not flourishing,” he underlined.
The spokesman was of the view that the drive against smuggling was not a factor behind the recent price hike.
“Through this campaign, the government has attracted investment and as a result foreign manufacturers are setting up plants in Pakistan,” he pointed out.
He emphasised the need for providing a level-playing field for the industry as it would increase the tax revenue and create employment in the country.
Talking to The Express Tribune, AHL auto analyst Arsalan Hanif mentioned that the price hike was due to the surge in rubber prices along with other inputs, which were mostly imported.
“The depreciation of local currency and increase in raw material prices are forcing tyre makers to increase prices,” he said.
On the other hand, freight cost had shot up compared to pre-Covid levels due to container shortage and higher demand, he added.
Moreover, the rising utility expenses were also a concern for the manufacturers, Hanif said.
“We believe the price hike was necessary to keep the industry profitable,” he underlined.
“This cost pressure will subside from March onwards as freight charges will start normalising along with stability in rubber prices,” he projected.
The government was also striving to curb under-invoicing and smuggling, which would allow the industry to enjoy a level-playing field, he said.
Ismail Iqbal Securities analyst Muqeet Naeem was of the view that the rupee devaluation would increase prices of imported tyres in the long run. Hence, it would provide an opportunity for the local players to grab a larger market share, he said.
“However, the issue of tyre smuggling still persists, which needs to be addressed for the local players to flourish,” he added.
Published in The Express Tribune, December 19th, 2021.