Prices at multi-year low and still under pressure

The auto sales momentum seen in the last couple of months have given a positive sales volume both in the original equipment and replacement tyre market. Fall in crude prices to US$100 per barrel is a big positive outlook for tyre manufacturers as 30% of raw material cost come from crude derivatives while 50% comes from natural rubber. While in domestic market due to poor demand from the tyre sector, which consumes over 50% of the natural rubber production in the country and bear trend in the overseas market put pressure on prices despite disruptions in tapping owing to heavy South-West monsoon.

Domestic natural rubber prices have seen the sharpest fall in five years, hitting `.121 a kg. Rubber prices are down 28.40% from the average of `.169 a kg in January. A slowdown in demand along with over supply in markets has sent international rubber prices spiraling down. According to experts, increase in acreage of rubber about seven years ago in key rubber producing countries like Thailand and Malaysia has now translated into higher supply. Fortunately, for rubber goods manufacturers, it coincides with a contraction in demand from China, the world’s leading tyre manufacturing country. There’s news of a rubber inventory pile-up in China, which leaves scope for a further drop in prices from current levels.

The benchmark RSS4 grade rubber closed at `.121 a kg at Kottayam, while RSS3 grade closed at `.100.86 a kg at Bangkok and Malaysian SMR20 closed at `.92.21 a kg. On National Multi Commodity Exchange September 2014 futures closed at `.116.97 a kg, October at `.116.76, November at `.116.94, December at `.117.42 and January 2015 closed at `.119.58 a kg. Tommorrow the market may touch ¥116 a kg tag, for September contract. On Tokyo Commodity Exchange, September 2014 futures series closed at ¥177.5 a kg, October at ¥177.8, November at ¥181.7, December at ¥184.9, January 2015 at ¥187.5 and the contract for delivery in February 2015 closed at ¥188.6 a kg. Tommorrow the market is expected to touch ¥185 a kg tag, for February contract.

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