Rubber prices not expected to fall despite imports at lower duty

The announcement that 40,000 tonnes of natural rubber can be imported at the concessional duty of 7.5 per cent has created a flutter in the market and apprehension in the minds of rubber farmers. What has created greater consternation in the minds of the farming community has been the speed with which the announcement was made.

The announcement came in the backdrop of a short spell of just two weeks when global rubber prices edged lower than domestic prices.

However, Mr R Sanjith, Head of Commodity, United Planters Association of Southern India (UPASI), said that for six months domestic prices were consistently lower than international prices. Between January and mid-July, the average global rubber rice ruled at Rs 244 a kg, Rs 20 higher than the domestic price of Rs 224.

Rubber Board estimate

The Rubber Board has estimated that domestic rubber production will increase by 4.8 per cent in 2011-12 to 9.02 lakh tonnes while consumption is poised to grow by 3 per cent to 9.77 lakh tonnes. Going by the early trends for the first three months of the current fiscal, the targets are realistic, sources in the Board said.

The potential demand-supply shortfall of 75,000 tonnes can easily be met from the stocks available in the country, they said. The stock available at the end of June was 2.47 lakh tonnes, enough to last over three months. While the industry has been consistently questioning existence of the stock, sources in the trade stated that the difference if any would not be so huge as to create a shortfall in 2011-12.

Given the dynamics of the markets and the global demand-supply position, Indian prices are not expected to fall much.

Rubber Board sources said the first consignment of imports undertaken after the announcement was made, would hit the domestic market only 2-3 months down the line. There is regime of regulatory procedures which have to be complied including regulatory approvals from the Directorate-General of Foreign Trade.

Mr George Valy, President of the Indian Rubber Dealers Federation, said that of the 40,000 tonnes of natural which were permitted to be imported last year, just around 10 per cent would have been imported. Neither did the announcement, nor the actual imports threaten the price line then, he said.

Short-term blip

However, he did not rule out the possibility of a short-term blip in prices in the wake of the latest announcement. But even this trend has not been testified to by the developments of the last couple of days when rubber prices did not evince much erosion.

The price spurt in July was mainly due to low arrivals in the markets on account of incessant rains. This was also the season of high imports. But all that is poised to change from August when domestic production in poised for their annual cyclical upsurge. But the increased arrivals from next month are also not expected to depress prices to any degree since it is going to be dictated by global price trends.

In the worst case scenario, India can always resort to the export market if and when the domestic prices fall Rs 10 below the international prices, Mr Valy said.

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