“The US, EU and India are our key export markets for natural rubber and the fragile economic conditions in these markets led to reduced demand for the commodity.”
“As traders, a sustained downward trend in rubber prices is far from ideal as you are compelled to release stocks at unfavourable prices to continue operations.”
De Silva said the firm had cut stocks and become lean to escape the risk of volatile prices.
Global commodity prices, including, foods, energy and metals tend to collectively ‘rise’ as the US Federal Reserve for example prints money and the credit system transmits the monetary policy to the real economy debauching the inherent value of the currency.
Commodity prices tends to ‘fall’ as the underlying value of reserve currencies such as the US dollar or Euro rises, usually due to credit contractions which inhibit monetary policy transmission.
Individual commodities however can be further hurt by real demand and supply conditions.
Eastern Merchants said a fall in oil prices also made synthetic rubber cheaper, hurting demand.
“All the commodities that we trade in were impacted in one way or the Other,” the company said.
“However, our core trading business is largely based on natural rubber and most of our exports are destined to the tyre industry which is strongly linked to the automobile sector.”
The company said auto tyres accounted for 60 percent of the demand for natural rubber and sales of cars had dropped in key markets. Tyre demand in Europe had fallen to a seven year low.
Car sales in India had plunged 20 percent and listed Indian tyre companies had also performed badly.
