Decline In Oil Prices Could Significantly Boost The Tire Market Growth

Posted on: Feb-2019 | By: Pro Market Reasearch | Chemicals & Materials

On the basis of combined data of BSE Sensex from the past three months, it is revealed that tire stocks have surged by 6% to 16%, which is a quite impressive hike. The major and sensible reason behind the hike in tire shares is the rising demands of vehicles at a global level.

The key factor, which has been indirectly boosting the tire market, is the sequential plunge observed in oil prices. Owing to the decline in oil prices, the automotive market dragged up, which uninterruptedly boosted up the tire market growth.

According to a financial services group, Nomura, with every decline in crude oil price by $10 for a barrel, there seems to be a possible addition of 110 basis points to the margin of tire companies.

Replacement sector in the tire market seems to gain significant benefit due to the favorable value of resources as more utilization of raw materials by the tire manufacturers counterbalances the possibly decreasing demands from automakers.

In the past three months, Apollo Tires—dominant player in the truck-bus radial (TBR) segment— stocks were plunged by 0.58 percent. While CEAT and MRF stocks were hiked by 0.14% and 0.40%, respectively.

Also, there seems to be a direct impact on tire market due to alteration in crude oil prices. As the component derived from crude oil is used in tire manufacturing and comprises 30% of the raw material cost.

The tire manufacturers can possibly improve their margins by 200–300 base points, by utilizing the complete benefits from the decline in prices of crude oil. However, tightly linked, but the demand and sales of tires are superior to automobiles, due to the short time span of tires that generally need to be replaced after a period of 3 to 4 Years.