The Hindu Business Line : Low growth in offtake may weigh on rubber prices

A shift to synthetic rubber from natural rubber by tyre manufacturers could cast pressure on the commodity's prices. However, a section of the industry is of the view that since surplus stocks are limited, natural rubber could be range-bound in the short to medium term.

According to industry sources, the tyre sector could have shifted to synthetic rubber to an extent of seven per cent and in some cases, the manufacturers shift was about 10 per cent.

"It is likely that the shift (towards synthetic rubber) will be more in the coming months," said a tyre industry official.

Consumption shift

"Also due to high prices and import of Chinese goods, the non-tyre sector is performing badly. Therefore, growth in consumption by the non-tyre sector may be stagnant if not negative," the official said.

However, the Cochin Rubber Dealers' Association President, Mr Radhakrishnan, said the shift in consumption of synthetic rubber by tyre companies would not be as being portrayed. Definitely, there is some shift. But it could be one or two per cent, not more," he said.

The tyre industry official, pointing to the first quarter trend in the current fiscal, said factors such as shift in consumption pattern and problems in the non-tyre sector could result in lower demand for natural rubber this fiscal.

"Besides, peak production is around the corner (September). Production growth coupled with lower consumption will have a negative effect on prices," he said.

`Just enough'

Mr Radhakrishnan, on the other hand, said the tyre industry could be holding 26,000 tonnes stocks, while traders, processors and growers together could be holding around 29,000 tonnes stocks. "Rubber production in August will just be sufficient for meeting domestic demand, while the held over stocks could be used for exports. In September, too, production and consumption should match at around 65,000-68,000 tonnes," he said.

Between October and December, production was expected to 90,000 tonnes every month against which consumption would be around 70,000 tonnes.

"This will mean there will be 50,000-60,000 tonnes surplus stocks. But we will have to see how exports fare. Currently, exports are doing well. This month we are exporting 5,000-6,000 tonnes and next month, too, a similar quantity will be shipped. We have exported 31,000 tonnes between April and July," he said.

Currently, RSS 4 is quoted at Rs 92 a kg in the domestic market and its equivalent RSS 3 in the global market is ruling at Rs 99.82 in Bangkok.

Problems of delay

"International prices are Rs 7-8 a kg higher than domestic prices. As long as they are Rs 5-6 a kg higher, exports will take place," Mr Radhakrishnan said.

The tyre industry official, while conceding that exports could rise, said exporters were, however, beset with problems such as delay in reimbursement of VAT they pay to the Kerala Government and delay in China entering the market.

"We think, the price could come to a level of Rs 80 a kg in two months time," he said.

Mr Radhakrishan said prices could move Rs 5 a kg for RSS 4 on either side. "We think prices will move within the Rs 85 to Rs 95 band," he added.

Another factor causing concern is the projection by the International Rubber Study Group that natural rubber consumption will trail production during 2007 in view of lower GDP growth in countries such as the US and Japan.

Also with fund managers exiting rubber futures, the prices may not be supported without proper fundamentals as it happened in the last one-and-a-half years, according to trade sources.