Rubber climbs on declining supply

Rising demand for natural rubber from tyre manufacturing sector amid declining production in top producing countries may keep the global price up in the coming days. Many rubber producing areas in Thailand and Indonesia is experiencing low latex production on bad weather conditions. This declining production of rubber coupled with easing global crisis is heating up the price of rubber.

Rubber reached the highest level in five months amid declining supply in Thailand and after Europe agreed on a second bailout for Greece. Greece winning 130 billion euros in aid it needs to avoid a March bankruptcy. Higher oil prices were also supportive as crude rallied to a nine-month high after Iran said it stopped selling to France and Britain, boosting the appeal of natural rubber as an alternative to synthetic rubber. 

Today, RSS4 grade closed at Rs 186 a kg at Kottayam and RSS3 grade closed at Rs 201.16 from Rs. 202.11 a kg at Bangkok. The March futures for the grade increased to ¥320.8, April closed at ¥325.4, May at ¥330.7, June at ¥334.6 and July at ¥337.5 on the Tokyo Commodity Exchange.

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Increasing international prices keeps the momentum

Iran's announcement over the weekend that it had stopped selling crude oil to British and French companies has push crude prices higher. The Oil price at Brent has climbed to $120.11 a barrel after Tehran retaliated to Europe's latest sanctions over the country's nuclear programme.

Global natural rubber prices have been hovering around Rs 200 per kg. The Indian rubber prices are at around Rs 185 per kg and the gap between Indian and international rubber prices is widening due to a subdued domestic demand. Rubber growers are reluctant to release their holding at the current price. Tapping is expected to slow down further as summer advances. 

On 21st February, RSS4 grade closed at Rs 185.50 a kg at Kottayam and RSS3 grade increased to Rs 201.81 from Rs. 201.35 a kg at Bangkok. The February futures for the grade increased to ¥312.9 from ¥309.5 a kg and March closed at ¥315.2, April at ¥318.8, May at ¥322.2, June at ¥326 and July at ¥328.4 on the Tokyo Commodity Exchange.

Thailand’s market intervention price scheme is yet to come into effect, global rubber prices have been looking up since then.

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Positive outlook week for the price movement

The Rubber price is likely to be higher this week on supply concern following the report of wintering and dry season in the major growing countries. Natural rubber production from world's biggest growers may slowdown this year while demand to climb up on cooling global economic crisis.

Recent encouraging performance by major car companies and demand from the automobile market has improved, though it is yet to reach full throttle. According to Rubber Board, India is expected to produce 9.02 lakh tonnes of natural rubber, while consumption is estimated at 9.66 lakh tonnes during the current fiscal.

India's natural rubber imports in January surged 223% to 26,375 tonnes, while production rose 3.7% to 102,500 tonnes, when compared to same period of previous year. While consumption during the month stood at 82,000 tonnes compared with 81,000 tonnes in January 2011. According to the traders the market is still short of rubber as growers hold stocks in anticipation of better prices.

Sheet rubber closed at Rs 188.50 a kg, at Kottayam. On 10^th February RSS 3 dropped to Rs 202.89 from Rs. 203.28 a kg at Bangkok. The February futures for the grade declined to ¥300.4 from ¥304 a kg, March at ¥304, April at ¥307.1, May at ¥311.2, June at ¥314.1 and July at ¥316 were trading in the current session on the Tokyo Commodity Exchange.

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Tyre industry seek 1 lakh tonnes duty free import of NR

Even though peak rubber production season falling between October and February and favourable weather conditions, the domestic availability of rubber is a key concern for the tyre industry. All major tyre companies have made substantial investments for new projects and expansions primarily in radial truck and passenger car tyres and limited growth in rubber area under cultivation; availability situation is feared to worsen in the foreseeable future.

In a pre-budget presentation made to the Ministry of Finance, Autmotive Tyre Manufacturers Association (ATMA), tyre industry has asked for duty free import of one lakh tonnes of natural rubber to bridge the gap between domestic production and consumption and also asked for waiver of customs duty on raw materials like butyle rubber, SBR (tyre grade), EPDM and polyester tyre cord, which have no domestic production.

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Intervention effect to be felt from mid February

While addressing the 167th meeting of the Rubber Board at the Rubber Research Institute of India (RRII) today at Kottayam, the Rubber Board Chairperson, Sheela Thomas said "there would not be much fluctuation in the natural rubber price, even though many of the major rubber consuming nations were still under the shadow of economic uncertainties. Recovery in advanced countries is expected to begin only in the second half of 2012. World natural rubber supply would decline due to wintering and dry season in major rubber growing regions and tightness would continue irrespective of decline in demand". 

On 24^th January, Thai government approved a 15 billion baht budget to buy unsmoked sheet (USS3) from farmers at 120 baht per kg to prop up rubber prices and the intervention scheme to shore up prices is expected to start in mid-February after the formation of committee to oversee the scheme and several legislative process to be completed.

Till 23^rd January, the domestic price was higher than the international prices. The Thai government’s decision to intervene in the market to bail out growers had triggered a spurt in international prices. This change may trigger a rise in export from India. Currently 320% increase was recorded in rubber exports during April-December 2011. On the other hand, import of natural rubber will be low, due to rise in international prices, making overseas buying expensive. In future only import will be which was ordered in December and also due shortage in supply, if so.

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