The Hindu Business Line : Small rubber dealers in a spot over high prices

Natural rubber prices in the domestic market are currently ruling at record high levels, powered by increasing demand, a palpable shortage of the commodity and rising prices in international markets.

Kochi , Jan. 8

GROWERS may be laughing their way to bank these days on the back of rocketing rubber prices, but small and medium-sized dealers are growing edgy as price fluctuations hit them harder than ever in the past.

Also, the surge in natural rubber prices to over Rs 70 a kg means that small traders need to cough up large sums if they have to maintain the quantities of their trade. Otherwise, they will have to play with smaller stock levels, which drastically cut their income.

Except for a handful of large dealers who supply directly to tyre manufacturers and growers, other stakeholders of the rubber trade such as small traders don't really enjoy the present boom.

"This is a tough time for dealers. The investments in the trade are going up by the day," said one dealer here, who does not want to be named. "Price increase is now in the range of Rs 1-2 a kg. The drop is equally significant," he pointed out.

Natural rubber prices in the domestic market are currently ruling at record high levels, powered by increasing demand, a palpable shortage of the commodity and rising prices in international markets.

"Rubber trade in India is purely on basis of volume, and lower volumes mean you earn less," the dealer said.

Unlike in other rubber producing countries such a Thailand and Malaysia, rubber traders in the country operate on wafer thin margins. Typically, a trader gets only 15-25 paise profit on a kg of rubber.

This means that in order to make more money, traders have to deal in more volumes. The present escalation in prices means they have to contend with smaller quantities of rubber for trading.

"When the price was around Rs 50 a kg, you could buy 2,000 kg of rubber with Rs 1 lakh. Today with the same amount, you can buy around 1,400 kg. So you are deprived of the margins on 600 tonnes that you had in the past," a dealer said.

Farmers enjoy 90-95 per cent of the market prices when they sell their rubber.

"Here buying and selling take place on the basis of the price in newspaper. This is the reason why Indian farmers get such high farm gate prices," he said.

Another reason for this trend is the severe competition among dealers who are present in large numbers. It is estimated that India has around 9,500 rubber traders, out of which over 8,000 are in Kerala.

Though rubber is not a perishable commodity, small traders, operating on limited budgets, don't stalk up and then sell when prices rise. Normally they keep stock for a few days and dispose them off to meet their working capital requirements.

Even if somebody ventures to stalk up rubber to benefit from rising prices in the future, costs such as interest, insurance and warehouse charges take away a good chunk of potential profits.

Besides, nobody dares to hold rubber at today's prices. "Everybody is scared to play with today's prices," said a trader.