The commodity may see more downside on China economy slump
Rubber prices have been on a slide for some time now, and had recently touched a six-year low following concerns about slump in the Chinese economy. While prices might still undergo some more correction, a recovery is also in sight if El Nino affects production in some of the major rubber producing countries.
In the first week of July, natural rubber prices were trading around Rs 128 per kg in the spot market and they closed the month at Rs 123 per kg. Though prices opened in August around the same level, they were seen correcting as the stock market in China started falling. China later devalued its currency yuan and returned to the export-focused policy, opening up speculations about its deteriorating economy. Re-focus on exports in a sluggish global economy meant that the country could not attain any significant growth in the domestic consumption as intended by its previous policy.
China, being the largest consumer of commodities, pulled down every other commodity counter along with rubber. By the last week of August, prices in the Indian spot market fell to a low of Rs 110 per kg, a level that the spot market saw last in 2009.
The international prices too fell considerably in August. TOCOM (Tokyo commodity exchange) natural rubber prices were ruling at ¥230 per kg in June. It saw a high of ¥223 and low of ¥199 in July. Prices dipped to a low of ¥165 by the last week of August. Low crude oil prices also have been pulling down rubber prices.
The Indian market conditions were not supportive of rubber prices either. Between April and August, production has been down by 11 per cent at 2,42,000 tonne. In August, there has been a production deficit of 32,500 tonne. As international rubber is priced lower than that available in the domestic market, the country imported 33,292 tonne in August, as per the data from the rubber board.
“Import duty hike from 20 per cent to 25 per cent and Kerala’s price support scheme had lent some backing to the prices in the previous months. Though the Kerala government has started the procurement scheme at a minimum support price of Rs 150 per kg, reports suggest that payment of subsidies are still pending,” market watchers said. As per the scheme, the state government will spend Rs 300 crore to pay the differential between the minimum support price and the market prices.
Analysts find that rubber may see some more downside in the coming weeks. Meanwhile, market has been speculating about the El Nino impact on the global rubber production. Thailand and Indonesia is likely to see a drought-like situation due to the El Nino.
If drought persists in these countries production might take a hit. The peak production happens in these countries between October and January. While some global analysts are of the view that this will lead to some recovery in rubber prices, others feel that slump in Chinese economy and lower demand will hold back prices.
If El Nino affects the market, prices may recover to the ¥200-210 level in TOCOM after correcting to 150 per kg.
