The Hindu Business Line : Rubber continues to fall; may slip to Rs 85

Under pressure
Domestic prices slip below global prices.
Imports also seemed to have affected the market sentiment.
Fall despite crude hovering around $75 a barrel

Chennai , July 25

Domestic natural rubber prices have crashed by over 20 per cent in 60 days despite the fundamentals, which propelled the rates to a historic Rs 118 a kg, remaining the same.

Various factors have come into play to put pressure on prices and market sources say they will not be surprised if the prices slip to Rs 85 a kg.

Spot prices for ribbed smoked sheet (RSS) 4 had touched Rs 118 a kg on May 27. On the same day, prices for August contracts touched Rs 12,000 a quintal. On Tuesday, RSS 4 was quoted at Rs 91, while August contracts closed at Rs 8,930 on NMCE.

"A fall in international prices has resulted in domestic prices falling. Reports are that fund managers have withdrawn from rubber," said an official of the tyre manufacturing industry. "Fundamentally, nothing has changed," the official said.

"Currently, domestic prices are Rs 20 a kg lower than international prices. This is a wide gap and we suspect some foul play," said Mr N. Radhakrishnan of the Cochin Rubber Merchants Association.

In Bangkok market, RSS 3, which is comparable with the domestic RSS 4 grade, ended at Rs 111.56 a kg on Tuesday.

"While global prices have declined by Rs 16 in these two months, domestic prices have fallen more sharply. In fact, prices in the futures market have slid more sharply," Mr Radhakrishnan said.

"During 2002-03, domestic prices were higher than global prices. Now, the situation has changed," he said.

When domestic prices slip below global prices, naturally avenues for export open up. But even there, exporters are facing problems.

"Exporters have run out of funds. That's because the Kerala Government is yet to refund them the four per cent they have paid towards value-added tax. While some amount is pending from the last fiscal, no reimbursement has been made for this fiscal," he said. Imports also seemed to have affected the market sentiment. Mr Radhakrishnan said imports were marginally higher than the exports that have been made.

Imports

"Nearly 19,000 tonnes of crumb rubber should have come into the country and exports are to the tune of 3,000-4,000 tonnes a month," he said.

The tyre industry official said some of the companies were keeping off the market looking for clear direction in the market.

"A sort of stock market syndrome is prevailing in the rubber market. With prices dipping, dealers have begun to unload and that has had its effect in the market," he said. "With such a trend, the fact is fundamentals are no more applicable to the rubber market," the official said. The decline in the prices is despite stocks available being just hand-to-mouth for the users. "Maybe, stocks could be around 60,000 tonnes put together what dealers and companies have," he said.

The tyre industry official said the stocks could be around 45,000 tonnes. With prices declining at a time when production is not at its peak, traders feel the rates could be under pressure during October-November, when tapping would be in full swing.

Other factor

The other factor that has not escaped note is that rubber prices have tended to decline when crude prices are hovering around $75 a barrel. When crude prices rise, natural rubber also tends to increase as synthetic rubber becomes costly. But during the last fortnight when crude has been hovering at record levels, natural rubber has tended to slip."Rumours are that fund managers have vacated their positions in rubber and have switched over to crude, gold and metals," an industry source said.

Selling continues

Our Correspondent reports from Kottayam: Weak global trends and the selling from dealers continued to hammer spot rubber on Tuesday. There were no buyers in certain grades including latex even at quoted levels as the market talks indicated further decline in prices. Covering groups and purchase agents were buyers on selected grades but their volumes were narrow.

Futures mixed

The rubber futures showed a mixed trend on NMCE. The market lost further in the morning session but recovered slightly later. Spot prices (Rs a kg) were: RSS-4: Rs 91(Rs 92); RSS-5: Rs 90 (Rs 91.00); ungraded: Rs 87.50 (Rs 89.50); ISNR 20: Rs 90 (Rs 91) and latex 60 per cent: Rs 76.30 (Rs 77.35).

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