The Hindu Business Line : Rubber ruling at unusual highs for December

Unusual buoyancy Last year, during the same period, prices for RSS-4 ruled below Rs 80 a kg, while during 2003 and 2004, the prices were below Rs 55. Growers now have the capacity to hold back stocks.

Chennai , Dec. 28

For rubber prices to rule above Rs 90 a kg in December is an unusual phenomenon. This is because December is the peak season for production and growers tend to sell to celebrate Christmas.

But since the middle of last week, rubber prices have tended to rise. Prices for the standard ribbed smoked sheet 4 (RSS-4) grade are ruling above Rs 90 a kg.

"Never have rubber prices gone up so high during the peak production period. As most growers in the Kottayam region celebrate Christmas, they tend to sell to celebrate. Fundamental factors do not support the current high prices," said an official of the Automotive Tyre Manufacturers' Association.

Last year, during the same period, prices for RSS-4 ruled below Rs 80 a kg, while during 2003 and 2004, the prices were below Rs 55. In 2002, the prices ruled below Rs 45 a kg.

While spot prices are ruling firm, futures prices, in fact, topped Rs 100 a kg earlier this week for April contracts.

Trade sources allege that some of the dealers are "ganging up" to ensure that the prices remained firm. "These dealers are quoting high prices and they have the wherewithal to hold the prices at such levels," the sources said.

According to Prof K.K. Abraham, President of the Pala Marketing Co-operative Society, "a bit of manipulation" is possible in the futures market. "But it cannot be to the extent of increasing the prices by Rs 5 a kg," he said.

According to the tyre manufacturers association official, while it is peak production time, consumption has dipped and exports have hardly taken place during the last couple of months. "These are the reasons why we feel the prices should not be so high now. But the rise in the global market is perhaps fuelling things here," the official said.

In Tokyo, rubber futures touched a four-month high of $2.14 on fears that supply could be hit due to flood damage in the growing areas of Indonesia and Malaysia.

Holding back stock

But the tyre manufacturers association official and Prof Abraham said the price rise could also be due to growers holding back their produce.

"Growers have now got the capacity to hold back stocks if they think the prices are not up to their expectation," said the official

"Farmers now have the muscle to hold back stocks. On the other hand, there could also be some kind of shortage in the domestic market," Prof Abraham said. "I don't think the yield is as high as expected," he said.According to him, one of the reasons was because tapping was affected during November due to rains. "There was practically no tapping last month due to extended monsoon. Also, winter has started and it could also have some impact," he said.

"However, in the long run, the domestic market will be attractive," Prof Abraham said.