Derivatives

Rubber on a roll, again

Parvatha Vardhini C | Updated on January 15, 2018

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But sharp price spikes from hereon are unlikely due to a combination of factors

Domestic natural rubber prices have seen a rebound since the multi-year low of ₹94 a kg (average monthly price) touched in February 2016. What drove the fall until early this year and how sustainable is the recent surge in prices?



From about ₹186 a kg in July-August 2013, natural rubber prices halved to ₹94 a kgin February 2016.

Cooling demand from China, which is one of the biggest consumers of rubber, slow recovery in the US and Europe, oversupply in the global markets, substitution of natural rubber with synthetic rubber due to the fall in crude prices and depreciation in currencies of major natural rubber exporting countries sent international rubber prices spiralling down in the last 1-2 years. While some of these factors did influence domestic prices to an extent, lower demand at home too has been one of the reasons for the softening of domestic prices.

Rubber Board data shows that India’s consumption grew by a mere 0.9 per cent to 9,81,520 tonnes during 2013-14 over 2012-13. Fiscal 2015 did show some promise, with a 4.0 per cent rise in consumption over 2013-14. But that did not hold on, with consumption slipping by 2.6 per cent 2015-16 .

Auto industry trends

Considering that about 65 per cent of the consumption is by the auto industry for the manufacture of tyres, this trend corresponds to the trends in automobile sales seen in these periods. Overall vehicle sales grew by a muted 3.5 per cent in 2013-14, but picked up to grow by 7.2 per cent in 2014-15. But it was on the back foot again in 2015-16, ending the year with only a 3.8 per cent growth.

Secondly, part of the need for rubber was met from imports, denting demand further for domestic produce in this period.

As per data available from the Directorate General of Commercial Intelligence & Statistics, the country imported 4,42,130 tonnes of natural rubber during 2014-15, compared to 3,60,263 tonnes imported in the year before — a 23 per cent growth.

Similarly, imports during 2015-16 show a 3-4 per cent jump over the previous year. This is because international prices, represented by the prices prevailing in Bangkok, stood lower than domestic prices, making imports a cheaper alternative.

What’s driven the rise?

But it has been a different story so far in fiscal 2017. From the February 2016 low, prices have risen to around ₹120-140 a kg until September 2016 on the back of an increase in demand.

As per data from the Rubber Board, the total quantity consumed during the four months ended July 2016 was up 6.2 per cent on year at 3,46.930 tonnes (latest available figures). The pick-up in auto sales seems to have increased demand for natural rubber. Auto sales during the April-September 2016 period have shown a 16 per cent volume growth over the first half of last fiscal. Secondly, imports have also come down due to certain measures undertaken by the government.

For instance, from January 2016, the government restricted the import of natural rubber through only the sea ports of Chennai and Nhava Sheva.

Thanks to these kinds of measures, the total quantity that landed in the country during the four months ended July 2016 was 1,48,589 tonnes, a drop of about 4 per cent from April-July 2015.

With prices moving up, domestic production, which remained lacklustre in the earlier years, also showed a rise.

The production during April-July 2016 was up 4.5 per cent from the previous year.

On the domestic side, higher rural incomes from good monsoons and lower interest rates are expected to sustain the pick-up in auto sales and thereby boost demand for rubber.. But internationally, China is still not on a strong wicket.

According to data put out by the Rubber Economist earlier this year, global rubber production is set to exceed demand by 4,11,000 tonnes in 2016 and by 4,30,000 tonnes in 2017, compared with a surplus of 98,000 tonnes in 2015.

Global outlook

According to the latest outlook of the International Rubber Study Group, world natural rubber demand is expected to increase by 1.3 per cent to 12.6 million tonnes in 2016 and by a further 3.2 per cent in 2017. But again, the supply in these periods is sufficient to meet demand, according to the Study Group.

Hence, any sharp spike in natural rubber prices is unlikely in the near to medium term. It can at best continue to be range-bound.

Published on November 05, 2016

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