The Hindu Business Line : Rubber price swings

RUBBER PRICES HAVE of late become a matter of concern for both domestic producers and user industries. Earlier this week, when the market ripples reached the Lok Sabha, the Commerce Minister, in response to a calling attention motion, gave an assurance to members that the Government would continue to monitor rubber prices and take action in the event of a price collapse. Fortuitously, on current reckoning, there may be no need for a market intervention in the near future. A combination of internal and external factors has contributed to the price volatility in the rubber market over the last three-four months. Besides the low stocks resulting from exports the last fiscal, the early onset of the South-West monsoon, by mid-May, affected tapping. Tightening supplies (end-May stocks were at their nine-year low) combined with rising demand from user industries meant firmer prices in June-July. Tight supplies also made imports inevitable as user industries could not be kept starved of raw materials. The benchmark RSS-4, quoting at Rs 65-68 a kg in June, slid to Rs 53/kg by October. No doubt, the price decline accelerated in the last few weeks, but it is nothing more than a function of demand and supply in the marketplace and expectations of changes therein.

Indian rubber prices are no more insulated from global influences. They largely reflect Asian trends. Forward prices in the Tokyo market and in Thailand are lower than current levels. As rightly observed by the Government, the current market rate of Rs 53-55/kg is still higher than the prices during corresponding period last year and is "reasonably comfortable". There is nothing alarming about rubber prices at present. The situation is significantly better than the rather depressing conditions seen two-three years ago. The brouhaha over falling prices appear somewhat exaggerated and uncalled for. As a matter of fact, the steep rise in crude oil prices in the last several weeks and the expectations of continued firmness over the coming months have made user industries seriously explore a shift from synthetic to natural rubber. Longer the crude oil market is on the boil, better it would be for the natural rubber market. So, on balance and by current reckoning, the possibility of a collapse in natural rubber prices looks highly improbable. Indeed, when quantitative restrictions on imports are gone and the Indian market is integrating with the global market, prices here are bound to track international trends.

The Government has the unenviable task of having to balance the conflicting interests of primary producers and user industries, but there is no need to succumb to sectoral pressures. That brings us to the question of strengthening the domestic rubber production base and making Indian rubber globally competitive both in price and in quality. A series of measures such as bringing more area under rubber, replanting of old and uneconomic trees with high-yielding clones and encouraging adoption of technology have to be implemented. User industries have to be encouraged to promote backward integration.