Market Strategy

Rubber prices drop on subdued demand

C.P. Krishnan | Updated on October 20, 2012 Published on October 20, 2012

The recovery waves witnessed in rubber prices subsequent to the global economic recuperation were undoubtedly short-lived and prices have relentlessly trimmed some of those gains. NMCE futures had earlier hit a peak of Rs 25,775 a quintal on April 2011, but the momentum spilled off and prices dropped to test Rs 15,950 a quintal in August 2012.

Steep drop in natural rubber prices in the international market and favourable climatic conditions improving production prospects amidst subdued demand from tyre manufacturers due to high price disparity between domestic and overseas prices, and concerns over quality dragged prices in the local market.

Dismal global economic outlook, enduring Euro Zone debt crisis, slowing of car sales in emerging markets and burgeoning natural rubber stockpiles in China put pressure on prices, pushing them to their lowest since later 2009 in overseas market.

Domestic scenario

India is the fourth largest producer and the third largest consumer of natural rubber in the world. For 2012-13 fiscal, rubber production in India is anticipated to rise 4.8 per cent to 9.3 lakh tonnes. Meanwhile, consumption is expected to breach-one-million mark and touch 10.06 lakh tonnes, according to Rubber Board.

For the last five years, natural rubber consumption has been outpacing production and the gap widened significantly throughout 2009-2011 period.

Auto tyre and tube sector absorb around 65 per cent of the total natural rubber consumed in the country. However, even as markets are witnessing deficit in production, the Rubber Board figures indicate that the market has remained in surplus owing to rising imports and carryover stocks.

Global Scenario

The Association of Natural Rubber Producing Countries (ANRPC) estimates a 4.9 per cent rise in production to 10.83 million tonnes (mt) among its member countries. The World’s largest natural rubber producer, Thailand is expected to produce 3.6 mt in 2012, up 4.7 per cent from 2011, according to ANRPC. Top consumer China is projected to consume 3.69 mt, 2.5 per cent higher from the previous year.

Natural rubber in major international markets such as Malaysia, Bangkok, TOCOM and SHFE has shown significant liquidation starting from the first quarter of 2011. In overseas market, prices had slumped by almost 57 per cent in August 2012 since it peaked to record high of $6.40 a Kg.

However, prices recently recovered smartly after the International Tripartite Rubber Council (ITRC) announced measures to seize falling prices.

Intervention scheme

The top three natural rubber producers, Thailand, Indonesia and Malaysia have decided to slash exports from October 1 onwards and cut down ageing trees with a view to stabilise the prices. These countries have decided to cut exports by a total of 3 lakh tonnes. The market intervention scheme adopted by Thailand and monetary easing actions taken by various central banks supported the sentiments as well.

High imports due to huge price disparity between Indian and overseas prices and excessive doping:

Natural rubber imports by India rose sharply to new high of 2,13,785 tonnes in the previous fiscal and are likely to be 1,50,000 tonnes in the current financial year according to Rubber Board’s estimates. However, the current pace suggests that imports are likely to surge exceeding estimates. So far, in the first half of the current fiscal, imports have jumped 23.5 per cent to 1,12,640 tonnes.

In spite of ample output and sufficient supply in the domestic market, tyre manufacturers prefer to import due to the wide gap between domestic and international prices. According to sources, tyre makers had signed new import deals when the domestic and international prices widened more than Rs 45 a kg a month ago.

(The author is Whole Time Director of Geojit Comtrade Ltd. The views are personal.)

Published on October 20, 2012
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