Rubber in revival mode as prices rise at last

After a long-drawn negative phase, the prospects of natural rubber seem to have brightened as prices have been rising in the early months of the current fiscal year and the farming community is reportedly gearing up to increase production.

“The present surge in prices at ₹144/kg for RSS IV grade vis-a-vis ₹128/kg in the corresponding period last year has revived the hopes of farmers. This could help achieve an additional production of about two lakh tonnes this year,” said George Valy, President of the Kottayam Rubber Dealers Federation. Last year’s production was 6.4 lakh tonnes.

The process of installing rain-guards is under way in most of small and marginal holdings. Around 20 per cent of the untapped area, out of the total 5.5 lakh hectares, has been made ready to start production this fiscal year. “Those who abandoned tapping due to low prices are coming back and the emerging trend would push up production to 7-8 lakh tonnes this year,” Valy told BusinessLine .

The additional two lakh tonnes of production would itself translate into a revenue of ₹3,000 crore to rubber farmers in the current year, he added.

Farmers sitting on stocks

However, Valy said the rising prices have resulted in supply constraints in the market as farmers are holding back their stocks in anticipation of further increase in prices. Availability will improve once the price touches ₹150/kg, he felt. The present climate is ideal to start tapping as many of the growing regions have received one or two summer showers, he added.

According to official sources, the present surge in price can be seen as short-term, positive market sentiment in the wake of concerns over domestic supply in China due to a drought in Yunnan province. Besides, China has announced it is levying an import duty on mixture rubber at the same rate as applicable to natural rubber. Currently, import duty on mixture rubber is nil. Chinese importers have been importing mixture rubber in large quantities before the duty comes into effect.

Apart from this, Thailand’s decision to cut natural rubber exports and the rise in crude oil prices are also reasons for the rising rubber price, the sources added.

ATMA unhappy

However, Rajiv Budhraja, Directror General, Automotive Tyre Manufacturers Association, said arrivals in the market have been poor in April and May and tyre companies have not been able to meet even a small percentage of their requirement even after picking the entire domestic quantity, thus increasing dependence on imports. Production has entered the off-season phase and understandably, tapping has come down in Kerala in view of the extreme heat.

It is highly unlikely that domestic production and availability will significantly improve this year. Quoting Rubber Board data, he said 30 per cent of the tapping area remains untapped in Kerala. In fact, the tyre industry expects rubber production to be, at best, at the same level as last year unless production in the North-East comes up in a significant way, he said.

Prices are determined by demand-supply and that underlies the current pricing trend, he added.

Anu V Pai, Research Analyst, Geojit Financial Services Ltd, said the price in the spot market are at its highest level in more than two years. In the futures market, it is hovering around multi-month highs.

However, in the international market, on the trendsetting TOCOM Exchange, November futures are seen in consolidation mode.

Looking ahead, even as a positive bias prevails, a seasonal shift is set to happen. While the lean production season is set to end soon, the arrival, intensity and distribution of the South West monsoon will play a crucial role in setting the price direction in coming days.

Overseas market factors

Apart from this, cues from the overseas market will also have a considerable impact. Movement in crude oil prices and developments in US-China trade talks will influence overall market sentiments, she said.

In the domestic market, considering the present conditions, the psychological level of ₹150 a kg could act as a major resistance above which, sentiments could improve.

On the lower side, the ₹120-125 a kg price band is seen as a crucial support. On the TOCOM, movement has been restricted to the 180-196 yen per kg range for the past few weeks. A voluminous breakout on either side could set a fresh direction in the near term, she added.