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M.R. Subramani

`Steep price rise forcing units to down shutters'

Chennai March 22 Stating that rubber futures are not helping in "price discovery" and "risk management", tyre manufacturers have demanded a ban on forward trading of the commodity.

In a letter to the Commerce, Industry and Department of Industrial Policy and Promotion Secretaries, the Automotive Tyre Manufactuers Association (ATMA) has said the demand for ban on rubber futures is no different from the bar imposed by the Centre on forward trading in urad, tur, rice and wheat. The New Delhi-based ATMA is the apex body of tyre makers in the country.

"The steep increase in the price of rubber has imposed severe financial burden on the tyre industry. Further, since rubber is the prime raw material for the production of items such as chappals, battery boxes, condom, hoses and thousands of other items, the steep price increase has forced hundreds of manufacturers to close shutters and most others are at the verge of closure or facing a difficult time due to exorbitant increase in input costs," ATMA said in the letter.

Wild quotations

The wild future quotations in respect of rubber had gone beyond the basic objectives of future trading and resulted in spot price getting distanced to cost plus reasonable profit to the grower.

The average market price of rubber during April 2006- February 2007 was Rs 95 per kg against what the Rubber Board had stated as a reasonable price of Rs 70-80 a kg.

"It is important to note that the reasonable price for rubber at Rs 70-80 has been assessed by the Rubber Board Chairman as one of the unsaid mandate for the board to ensure that the grower gets his due share by way of cost plus reasonable return/profit," the association said. Alleging manipulation in the futures market by a few persons, it alleged that the modus operandi for these people was to buy as soon as the market opens for small quantities at higher rates and sell once their price target is achieved.

Momentum play

Though traded volumes are low, it creates an upward momentum and the physical trade looks upon the futures for market direction. Hence, spot rate moves up immediately. This results in growers deciding to hold back their produce in the hope of getting even higher prices.

. As a result, the prices are casting a huge burden on the user industry, the association said.

The letter, a copy of which has been made available to Business Line, has been addressed to Mr G.K. Pillai, the Union Commerce Secretary; Dr Ajay K. Dua, Secretary of the Department of Industrial Policy and Promotion; and Mr Y.S. Bhave, Secretary of Union Food and Consumer Affairs.

More Stories on : Rubber | Tyres | Commodity Exchanges

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