By Rahul Dhuri
MUMBAI – Domestic natural rubber prices seem to be defying market dynamics, as despite estimates of higher production in 2019-20 (Apr-Mar), prices are expected to rise further in the next four to six weeks.
Generally, rise in output would put pressure on prices of a commodity.
Since last month, prices have been rising because of continued tight supply due to excessive rains and floods in Kerala last year. Rise in prices in the global market is also seen supporting the domestic uptrend.
In the spot markets of Kerala, natural rubber prices are likely to rise by 7-8% from the current level to 160-165 rupees per kg in the coming four to six weeks.
India’s natural rubber output is seen rising by 15.7% to 750,000 tn in 2019-20, Rubber Board Chairman and Executive Director K.N. Raghavan said.
Last year, rubber production in Kerala, which accounts for over 80% of the domestic output, was affected as the excessive rains and floods in the state led to spread of disease across plantations. The disease led to abnormal fall of leaves and affected production.
In 2018-19 (Apr-Mar), India’s natural rubber production fell by 7.5% to 642,000 tn, according to the data released by the Rubber Board.
Shortage in domestic production resulted in stocks at the end of March falling to 287,000 tn from 292,000 tn a year earlier.
Over the last few months, many small growers have stopped tapping rubber as yields have dropped because of high temperatures. This has added to the supply crunch, traders said.
“The tight supply is likely to continue for at least a month and most traders are selling old rubber stocks due lack of fresh arrivals,” said Narendranath Dharmaraj, director of Harrisons Malayalam, one of the largest rubber producers in the country.
Until April, natural rubber prices were reeling under pressure due to rise in rubber imports and subdued demand from tyre makers. However, imports this year are likely to be lower.
With the recovery in domestic rubber production, natural rubber imports are seen down 14% to 500,000 tn in 2019-20, the Rubber Board said.
“Robust demand from stockists and tyre makers is also seen supporting the uptrend in rubber prices,” said Biju Thomas, a rubber trader based in Kerala.
Rise in rubber contracts on the Tokyo Commodity Exchange are also seen supporting contracts on Indian Commodity Exchange and lifting spot prices in the domestic market.
Rubber futures on TOCOM are seen rising due to fall in global output. Global natural rubber production fell 5.2% on year to 2.99 mln tn in Jan-Mar, according to the Association of Natural Rubber Producing Countries.
Gains in crude oil contracts on the New York Mercantile Exchange are also seen supporting rubber contracts on TOCOM. Rubber prices take cues from the movement in crude oil as the latter is used to manufacture synthetic rubber.
Crude oil contracts on NYMEX are likely to extend gains after US President Donald Trump decided to suspend planned tariffs against Mexico, analysts said. However, if global trade tensions continue to simmer, crude oil prices might trade lower and weigh on rubber as well.
In March, the International Tripartite Rubber Council, made up of Thailand, Indonesia and Malaysia, agreed to cut production from April.
Drought in Yunnan province of China, one of the key rubber growers, has led to concerns over production declining, thereby supporting contracts on TOCOM, a research report said. End
Edited by Maheswaran Parameswaran