Home Global rubber market news India: Rubber under pressure on gloomy global outlook

India: Rubber under pressure on gloomy global outlook

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Supply crunch due to rain in growing areas propped up rubber prices in the domestic market in the first half of this month. This pushed up RSS4 grade rubber close to year’s high. Incessant rains in major growing areas in Kerala affected tapping activities, leading to supply shortage.

According to the Rubber Board, rubber production stood at 38,000 tonnes and 46,000 tonnes in June and July, respectively. Unlike previous years, use of rainguards has been on the lower side this monsoon due to a subdued trend witnessed during the beginning of the quarter. However, conditions are now favourable and planters have resumed tapping, though not on a full scale.

CORRECTIVE TREND

On the National Multi Commodity Exchange of India (NMCE), Rubber Futures underwent correction from their multi-month high of Rs 19,800 a quintal and are now trading around Rs 18,000.

Meanwhile in the spot market, RSS4 prices are quoted around Rs 185 a kg. Until two years ago, rubber prices in domestic and overseas markets ruled firm, but renewed concerns over the global growth outlook forced the commodity into negative territory. Besides the US and the Euro Zone, economic developments in the emerging countries are also affecting consumption. Mounting inventories and weak demand outlook are the major price drivers in the overseas market.

Huge inventories have been reported in Chinese warehouses. China’s bonded warehouses in Qingdao, make up the bulk of China’s inventory, that are well above its usual levels of 2.5 lakh tonnes. Due to burgeoning inventory, imports into China, the world’s largest natural rubber importer, have dropped significantly.

In the April-June quarter, imports into China fell 21 per cent compared with year-ago levels. In the meantime, in Thailand, rubber stock bought from the farmers under its market intervention scheme (which ran from October 2012 to May 2013) stood at 2.1 lakh tonnes.

According to the International Rubber Study Group, the global natural rubber production is seen rising four per cent to 11.88 million tonnes (mt) this year while consumption is seen at 11.59 mt. According to the study, natural rubber surplus for this year is likely to be at 92,000-2.84 lakh tonnes.

The recent ongoing supply crunch and high local prices are prompting tyre manufactures to import rubber from other countries where it is more economical. Indian RSS4 continues to trade at a premium to Malaysian SMR20, Thai RSS4 as well as Indonesian SIR20 grades. The gap recently widened significantly after the jump in prices in the domestic market. The existing wide gap between domestic and overseas prices encouraged manufacturers to use imported rubber.

IMPORTS JUMP

According to the Rubber Board, Natural rubber imports to the country in July jumped 39.2 per cent to 29,311 tonnes on a year-on-year basis and are expected to rise in the coming months. Apart from the monetary advantage, the quality of the ribbed smoked sheets is also another reason why tyre manufacturers rely heavily on imports. However, a weak rupee is making imports costlier and less attractive.

Since, Kerala contributes around 90 per cent of the total natural rubber production in the country, its productivity will remain a central point while determining domestic prices. Performance of the Indian currency would be another talking point for importers due to high landing cost. Above all, feeble global demand outlook continue to threaten international prices in the coming months.

(The author is Whole Time Director — Geojit Comtrade Ltd. The views are personal)

Source: The Hindu

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