Agri Business

‘Banks should lend urgently to help rubber MSMEs bounce back post Covid’

V Sajeev Kumar Kochi | Updated on November 23, 2021

Vikram Makar, president, All-India Rubber Industries Association

Industry body AIRIA calls for duty-free import of natural rubber, without port restriction

The All-India Rubber Industries Association (AIRIA) is concerned that banks are reluctant to favour large borrowers in the wake of the Covid pandemic and defaults by some firms. Vikram Makar, president, AIRIA, says this will impact both credit-financed consumption and private investments.

Since bank funding will be crucial in the post-pandemic period, Makar said, a wider range of financial instruments should be available to the micro, small and medium enterprises (MSME) in the rubber industry to ensure sustained investment, growth, innovation and employment.

Preferential rates and loan guarantee programmes are needed to help MSMEs in the rubber industry bridge the credit gap, he said. The government should mandate financial institutions and banks to prioritise additional funds for the sector.

Spot rubber extends gains

Covid has impacted overall exports, with a marginal decline of 0.007 per cent at ₹22,402.28 crore in 2019-20. However, from 2020-21, exports surged and the growth in FY22 may possibly vary from 8 to 9.5 per cent on a conservative basis, he told BusinessLine.

Edited excerpts from an interview:

What are your expectations from the government for the rubber industry?

There are duty inversion anomalies and several domestic industrial units have been put on unreasonable tariff systems. Now the commodity prices have reached a new high; we urged the government to pay prompt attention to the upward revision of import duty on rubber products and rationalising the import duty on rubber to boost domestic manufacturing units.

Natural rubber is the fundamental raw material of the value-added rubber products manufacturing sector. The key issues are scarcity of the material, domestic demand-supply mismatch, non-availability of certain grades of NR [natural rubber], escalating prices, high import tariff, non-tariff barriers and so on. Import of NR is essential for meeting the usage needs as well as for quality and value intensity.

We strongly urge the government to allow duty-free import of natural rubber, without any port restriction.

India‘s foreign missions can play a key role in facilitating exports of rubber products. Currently, the mission has commercial representatives who are tasked with promoting exports in general. These missions need to be reorganised and turned into active trade facilitators; the Government should identify countries with high potential for the export of rubber products manufactured by the MSMEs.

RSS-4 rubber prices are at an eight-year high. Will this bring some relief to domestic manufacturers and traders?

Rubber prices rose to an eight-year high after Onam. The RSS-4 variation fetched ₹180 per kg in the domestic market, compared to roughly ₹140 in the international market. However, the question is how long would it last. In July and August 2013, prices reached ₹196 on many occasions.

As a result of the Covid outbreak, demand for rubber latex has increased significantly. Farmers are more interested in latex production, rather than sheet rubber, for better farm-gate prices.

With the disruption in tapping due to excessive rains and tight supply, the prices may increase further. Many growers are holding back stock in anticipation of high prices. Farmers have high hopes as a result of the government’s announcement of a base price of ₹170. They believe that the rates will remain constant.

How is the rise in crude oil price influencing rubber supply?

Synthetic rubber, which is made from petrochemicals, is directly connected with crude oil, and the change in crude oil price directly affects it. The increase in crude prices has caused a spurt in synthetic rubber pricing globally.

Spot rubber likely to experience lows

Further, many synthetic rubber producing plants are having to shut down due to the pandemic and the high cost of shipping. Synthetic rubber pricing has, in many cases, more than doubled, which is far beyond the increase in oil prices. There has been more demand for osynthetic rubber, and any impact on crude oil prices has a direct bearing on their price and availability.

As natural rubber moves in alignment with general purpose synthetic rubber, any increase in crude oil price automatically encourages a rise in NR price. The price of crude oil is a crucial determinant of numerous economic sectors. This, in turn, has a knock-on effect on the output and prices of natural rubber.

Will the improved situation in the US and Europe affect the shortage of NR supply?

The IMF predicts that the US will not only recover but also exceed its pre-pandemic growth rate this year. The European economy has rebounded unexpectedly well after constraints were eased in March-April. The strength of the recovery in both the US and Europe has caused material shortages and rising prices of commodities.

NR is regarded as a commodity of such worldwide significance that it has been added to the list of critical raw materials, which are required for the proper functioning and integrity of a variety of industrial ecosystems. It is only available from imports in the US and Europe.

Unfortunately, due to acute shortages caused by the pandemic not fully affecting Europe, the US has also at different times affected the rubber growing regions in South-East Asia. However, bad weather conditions in many producing countries have hampered the output, leading to disruption in the supply chain and high freight cost. An improved economic scenario in the US and Europe will further ensure that NR prices remain firm in the coming months.

We at AIRIA are monitoring the ramp-up in local production and availability, coupled with improved supply in the South-East Asian growing countries, by informing our members to look at actively buying at every dip in prices for their present and short-term future requirements.

How does China’s stockpiling of rubber disrupt other countries’ imports?

There is a growing demand for rubber as a result of fast recovery of industrial operations all over the world. The most concerning element, however, is the intense scarcity of the material. Covid has halted production in South-East Asia, mainly in Thailand, Indonesia, Vietnam, and Malaysia.

Due to the increased demand for gloves, the concentration is now on latex production. Depleting NR resources make the international market extremely tight. Also, the current rise in crude oil prices has had an impact on synthetic rubber pricing.

On the other hand, just-in-time solutions are applied by successful companies everywhere to reduce inventory, increase productivity, and boost profits. By defying this norm, China’s manoeuvring and speculative approach and its pre-emptive move to stockpile rubber before the market is further constrained have exacerbated the problem.

This has created a large and sudden impact on availability and pricing and thus hampered the ability of other consuming countries, primarily India, the United States, the European Union, and the United Kingdom, to import the material on time and cost-effectively.

This approach of China is enabled by the sheer size of its rubber product manufacturing units and their collective and forecast buying of raw materials such as natural rubber at low financial cost.

I am afraid that the consequent imperfect competition, if it persists for long, will have an insidious impact on the value-added manufacturing activities of India and other countries.

Published on November 23, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.