Widening demand-supply gap to benefit whom

Natural rubber futures in India are likely to ease following losses in overseas markets and as supplies in local markets start improving amid sluggish demand from tyre makers, as automakers are placing fewer orders for tyres.

The consumption of natural rubber rose 5.6% to 5,01,940 tonnes in the first half of the current financial year, while production rose only 1.1% to 3,95,700 tonnes. The demand-supply gap is widening and the shortage might stand at about 1,50,000 tonnes. However, the Board does not see a shortage in the domestic market, as the projected opening stock in April stood at 2,36,275 tonnes and the rubber consuming industry is mandated to import about 1,50,000 tonnes through duty-free channels.

Currently, tyre industry address the supply crunch through imports, which have risen to 1,12,640 tonnes. Rubber imports could increase as a widening gap between local and overseas prices prompts tyre manufacturers to bring in more imports during the peak domestic natural rubber production season. Farmers are not selling now, but they are continuing tapping. Daily rubber supplies to markets are lower than normal as farmers are holding back produce. By mid-November this will lead to higher stocks and finally they will be forced to sell their produce in the uncertain market and could depress prices in the future. Even there is no improvement in natural rubber exports.

Usually natural rubber imports decreases during the October-March period when local supplies increases. Despite this, tyre manufacturers are inking new import deals as purchasing domestically is expensive. The spot price of RSS4 grade rubber in the Kottayam market closed at `.183 per kg, while Malaysian SMR 20, which Indian tyre makers prefer to import, was at `.156.57 a kg. The difference is very big. It makes imports viable even if there is a duty on imports.

Considering the current pace of imports, the total import would likely exceed 2,50,000 tonnes by the end of current financial year. Indian tyre makers are gradually trying to bring down their dependency on local supplies.

Read lot more in Rubber4U – 1st November 2012 issue