9OCTOBER 2024JAPAN TO RIDE ON GOVERNMENT INITIATIVES TO MANUFACTURE CHIPS IN INDIATYRE MAKERS FACE THE IMPACT OF SOARING NATURAL RUBBER PRICESTokyo Electron Ltd., Japan's leading chip equipment manufacturer, is looking to establish a team of chip engineers in India to align with the Modi government's initiative to boost semiconductor manufacturing in the country. The company aims to hire and train local engineers around 2026, starting with providing technical support to Tata Electronics Pvt, according to CEO Toshiki Kawai. Robotics will increasingly play a role, and support will be Tyre makers are facing challenges as natural rubber prices have surged by 33 percent year-on-year during the first five months of this fiscal year due to strong demand and limited supply, potentially affecting profitability, according to Crisil Market Intelligence and Analytics (MI&A).Domesic natural rubber prices averaged Rs 238 per kg in August, significantly higher than trends from the past decade. The last time prices surpassed Rs 200 per kg was in 2011, driven by a recovery after the global financial crisis offered from Japan both in-person and remotely, although specific hiring numbers were not disclosed.India is actively pursuing international electronics companies and chipmakers to set up operations, in line with Prime Minister Narendra Modi's vision to reduce the technology gap between India and more advanced nations. Apple is ramping up its iPhone production in India, while Tata Group and others are making significant investments in semiconductor fabs. The Indian government is providing incentives to support these ventures, which will require equipment and expertise from global firms like Tokyo Electron.Tokyo Electron plans to hire 10,000 new employees globally over the next five years as demand for domestic chip production rises across several countries. The company, a supplier to Taiwan Semiconductor Manufacturing Co., Samsung Electronics, SK Hynix, and Intel, forecasts record revenue and profits for the fiscal year ending in March. It also expects overall chip demand to double by 2030, driven by artificial intelligence, autonomous vehicles, and efforts towards energy efficiency and carbon neutrality.At the same time, the US is pressuring Japan to impose stricter controls on exports of advanced chipmaking equipment to China. Washington has sought to limit Tokyo Electron's ability to service its machinery in China, potentially invoking the Foreign Direct Product Rule (FDPR), which restricts sales of products globally if they use even minimal American technology. and accommodative monetary policies. Between 2008 and 2011, prices grew at a compound annual rate of 101 percent but subsequently remained below Rs 150 per kg for the next decade.Prices have risen again since the end of 2023, driven by a tight supply of natural rubber globally, coupled with steady demand from the automobile and other consuming industries. Crisil's Pushan Sharma emphasized that while previous price spikes were triggered by specific events like farmer protests and the pandemic, the current rise is due to fundamental demand-supply dynamics.Between 2011 and 2023, global natural rubber production grew by 35 percent, while demand increased by 40 percent, creating a supply crunch and pushing up prices. As natural rubber constitutes 20-40 percent of the weight of tyres, this has a significant impact on tyre manufacturers' profitability, with tyre companies consuming about 80 percent of India's natural rubber supply.In the first quarter of this fiscal year, the operating margins of the top five Indian tyre makers fell from 16 percent to 14 percent, as natural rubber prices increased by 22 percent year-on-year. With continued high demand and restricted supply, natural rubber prices are expected to stay elevated, impacting tyre manufacturers' margins until at least fiscal 2025. Crisil's Mohit Adnani projected that the rubber market deficit will triple in 2024, further straining supply and putting pressure on the industry.
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