The Hindu Business Line : Rubber futures could stretch their bull run

Contributing factors
Prices may top Rs 90 during June-July
Jump in production next fiscal unlikely
Stock fall in CWC warehouses could also trigger rates

Kochi , March 12

Natural rubber prices in futures as well as spot market may well move up in the short-term on rising demand. Shrinking stocks and lower production of rubber, on the other hand, will also fuel the price rise.

The present volatility seen in the spot market and heavy fall in the futures are expected to come to an end in another 10 days time, and prices could begin yet another journey upwards.

The factors that would influence this trend are good demand for rubber from consuming industries such as the tyre sector, and lower than last year's stock levels. It is anticipated that by end of March, there would only be around 75,000 tonnes of carryover stock and drop in rubber production during monsoon in June and July.

The June series in NMCE futures is presently trading around Rs 86 a kg. Industry analysts are of the view that it would not be surprising if prices touch Rs 90 a kg during June-July this year.

Production Blues

If monsoon is going to be heavy like last year's, production will suffer even if growers, enthused by the high prices, go for widespread rain guarding. Till July, production will be lower than the demand from consuming industries such as tyre makers, who are clocking good growth.

The Rubber Board claims that production during 2005-06 would be up by 4.9 per cent to around 7.86 lakh tonnes over last year, which exceeds the Board's own forecast.

But there is another view in the market that this growth is not a real growth: The numbers are looking good only because introduction of VAT in Kerala helped significantly reduce smuggling of rubber to neighbouring States. The four per cent VAT almost eliminated the attraction to smuggle rubber and those quantities are now showing in the books.

Kerala, which produces over 90 per cent of rubber, is nearly saturated for new rubber plantations and a significant increase in output is impossible given the growth in new plantation areas. So the industry is not expecting a big jump in production during the next fiscal as well.

In any case, production would be lower than consumption from March to July. The tyre industry is already talking about a 25,000 imports to tide over this shortage.

The demand-supply mismatch can fire up the prices, and it is likely that Indian prices would move closer to the international rates in the coming months.

Stocks pile up

One of the main reasons that pulled down futures market in the past couple of weeks is the surge in rubber stocks that have been bought in futures trading and deposited with warehouses.

The National Multi-Commodity Exchange (NMCE) data shows that rubber stocks in CWC warehouses have crossed 6,500 tonnes, a rare phenomenon since rubber futures took off around three years ago.

At least 2,000 tonnes out of this stock is likely to be consumed after March 15, when contract for this month ends. When stocks fall, futures could once again start to climb, especially because speculators are likely to become active once again.

But there could one thing to watch. That is crude oil prices. Natural rubber prices gains can also be attributed to rise in crude oil prices. If that comes to an end, then rubber prices could come under pressure. The other factor that could affect the sentiments is end to violence in Thailand's main rubber-growing area. It has resulted in lower production in that country and subsequently, shortage in the global market.

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