India Elastomer Industry to lose 40,000 Jobs due to Coronavirus: ChemAnalyst
by Chem Analyst Chemical Database PriceIndian elastomer
industry has hit the rock bottom battered by Coronavirus lockdown posing an
uncertainty in future growth with collapse in prices of upstream crude oil and
dwindling demand. With downstream tyre manufacturing companies incurring a loss
of around INR 50000 million, elastomer
demand from tyre sector is anticipated to suffer a drastic slump with no hopes
of recovery in the coming months. End use industries, primarily the automotive
has seen a huge drop in sales for the quarter and therefore poor demand for
elastomer for tyre and non-tyre applications are likely to be the precipitating
factor for loss to the industry, both manpower and revenue-wise. Furthermore,
violation of social distancing and sanitation norms has put the automotive
manufacturing belt along Pune, Ranjangaon, Chakan, Nashik, Pimpri-Chinchwad,
Aurangabad have been put under curfew. With zero production in automotive
sector through the lockdown period, the industry anticipates revenue loss to
the tune of INR 1 lakh crore amounting to about 0.47 per cent of GDP.
Automotive sales for the first quarter would be down by more than 50 per cent
with showrooms being shut and high uncertainty in demand. Production units are
spread across India and uplifting the lockdown in a systematic manner would
still mean partial operation as a feeder factory might fall in a different zone
where the lockdown restrictions might not have been eased, thus, leading to an
overall tardiness in the industry. Parts manufacturing, testing and assembly
line must operate in tandem to ensure minimal bottlenecking in the supply-chain
ecosystem. Therefore, recovery is expected to be painfully slow if different
tiers in the supply chain are not allowed to resume operation simultaneously.
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According to the
Indian Rubber Dealer Federation, there are over 0.25 million tonnes of rubber
inventories piled up in the country on muted buying sentiments as an outcomes
of production cuts and shutdowns. Adapting to the current scenario, companies
are compelled to cut off salary or lay off jobs in order to make up for the
loss in revenue. Owing to the ripple effect of prolonged shutdown amid Pandemic
misery, Apollo tyres, one of the largest tyres manufactures of the country, has
declared a voluntary reduction in salaries of leadership and management team by
25 and 15 per cent, respectively. JK tyres, also announced reduction in
finances by lowering the salaries of high authority workers to combat to the
losses. Similarly, Apollo Tyres senior management senior management will have a
cut in compensation by 15 per cent to 25 per cent with Chairman taking the
higher cut-rate than the senior management. Another exemplary has been the CMD
of Bajaj Auto who would not be getting any salary through the lockdown period.
As sales and profitability in the automotive business have plunged to all time
low, the industry veterans are expecting situation to worsen in the next couple
of months. This has been supplemented by the slash in demand in the travel and
tourism industry. Whole of our population is refraining from travelling
anywhere in the country and this has impacted the travel aggregators such as
Ola, Uber, Meru and private taxis. The frequency of run has dropped leading to
stagnancy in the replacement tyre demand. The OEM sales and replacement demand
both seem to have buckled under the pressure of curtailed demand. Demand for
natural rubber
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In view of the
precarious condition in the economy, production of tyres have been halted
across the country with only partial operation seen in some units. The tyre
industry itself is looking at a loss of about INR 5500 crore due to the
pandemic. As movement has been completely restricted and people are voluntarily
practicing social distancing, automotive and private ownership of vehicles has
drastically dropped, thus leading to a muted demand for tyres. Inventory has
built up all along the supply chain from raw materials to finished products.
Unlike other
industries where remote-based working is possible, production units cannot work
on the same principles. Therefore, workers downtime is the highest in
production and manufacturing sector.
Impact on the revenue of the industry is expected to be the lowest owing
to contractual nature of job with just about INR 2800 crore at stake. However,
industry is set to see job-cuts to the tune of 40 thousand due to the outbreak
of the pandemic. While some plants have resumed partial operation such as that
Apollo Tyres Perambra Kerala plant as the State Governments have given a green
nod to start production, many are yet to resume operations. They must do so
following all hygiene and sanitation procedures. Those plants that have started
operations are running units at sub-optimal level with just 30 to 40 per cent
efficiency. If production is not ramped up soon or no stimulus to demand is
expected, it would erode the margins of elastomer industry and affect the financial
health of companies. Elastomer industry is likely to bounce back to normal by
Q4 of FY2021 as the market is anticipated to stabilize by then, which means the
year ahead does not look very promising for the industry.
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Created on May 20th 2020 05:09. Viewed 273 times.