Ceat continues to benefit from materials cost trends

Mumbai, India - Ceat Ltd management expects the India-based tire maker to benefit from ongoing softness in raw materials pricing into the fiscal fourth quarter but foresees a possible uptick during 2023.

“With respect to margin performance and cost outlook, the raw material situation has been benign as expected,” according to managing director Anant Goenka.

“Crude inched up during the quarter, while rubber softened a bit further,” Goenka added on a 25 Jan conference call to discuss Ceat’s third quarter results. 

While noting domestic availability challenges due to producers holding inventory, the MD said Ceat’s ‘commodity basket’ cost reduced by about 4% versus the second quarter.

And, based on current purchases in pipeline, he expected raw material costs to further decline by between 2% and 3% in the fourth quarter. 

Goenka, however, went on to add a note of caution regarding the outlook for materials pricing further down the line. 

“We are monitoring the situation closely,” he commented. “Near term, the global economic outlook will keep a check on commodity prices, however, China coming back post-Covid impact will be a key variable to watch out for.

Putting figures on recent trends, Ceat CFO Kumar Subbiah said natural rubber prices at the start of quarter three was in a range of Rs165 to Rs170 per kg in the local market, while international market ranged between Rs160 and Rs165.

“And towards the end of the quarter, that Rs165 became Rs140-145 and international market came down to Rs140-145, stated Subbiah.

For other materials, he continued, the decline in pricing was “very slow” with a lag of about at least one to one and a half months.

“So, for example, synthetic rubber prices moved down from say a $2,000 level to $1,800, $1,850 in the international market… and similarly fabric prices also at a similar level drop we saw from beginning to end of the quarter.”