Kerala-based Mardec RK Latex has the largest manufacturing capacity of centrifuged latex in the country. The company has a strategic tie-up with Mardec Berhad, Malaysia, who are the largest processors of natural rubber in the world. The group has three processing plants in India which produce centrifuged latex, skims crepe, crumb rubber, pale latex crepe, prevulcanised latex and compounded latex. Rajesh Ravi of FE talks to E Ranjit Kuruvilla, chairman of Mardec RK Latex, about his outlook on the rubber industry.
What is your near-term and long-term outlook for the natural rubber (NR) market?
The market will come down in the near-term and then bounce back to R175-R180 per kg. Natural rubber prices have come down from R200 per kg to the current level. The downside could touch R150 per kg, as November is a peak production month in India. Globally too, the market looks bearish and we can see prices correcting. There is lot of paper trading in NR, which is affecting the rubber market. The futures market, which determines the prices, is based in Tokyo and in reality it is just paper trading with no delivery. The real physical market is in Bangkok and Malaysia. I agree that Tokyo futures is a transparent market but delivery is nil, which affects the physical market. The fundamentals are still strong for natural rubber but it is seen most often reacting to the paper market in Tokyo.
Has the economic slowdown in developed countries affected NR consumption? Do you see a revival in the US and EU market?
The global economy is fragile and recovery is slow. If nothing major like the US shutdown happens, we can see a steady market. But the major and important factor in the NR market is China. Any small changes in the Chinese economy are seen affecting the NR market in a big way. So any small decline in Chinese consumption could impact NR more.
Farmers in Thailand are protesting against the sharp decline in NR prices and the Thai government has responded positively by procuring directly
from the farmers. I hear that 2,50,000 tonne of stocks are currently being held by the Thailand government. My sources tell me China is buying the whole 2,50,000 tonne and increasing its strategic reserves to 3,00,000 tonne. Currently, China has 50,000 tonne of NR stock.
International Rubber Study Group (IRSG) had reported some time ago that new areas that planted rubber some years back will start producing from 2013-14. What is your outlook?
Yes, production from new rubber plantations has started coming to the market. Large areas have come under rubber in Vietnam. The impact on supply will be really felt from 2016-17. My assessment is that 2% over-production from the current equilibrium will lead to a market crash in rubber. But, we will not go to the old level as the price of crude has increased from $ 30-$40 per barrel to $ 90-$100.
My estimate is that prices would be around $1.50 per kg by 2016-17. Indian production would increase only marginally while our consumption would increase substantially, leading to higher imports.
Effects of changing climate and labour shortage are worrying all the stakeholders. What is your take on NR?
Some changes can be managed. For example, heavy rains can be managed by putting rain guards. Climate changes are seen reducing yield in some countries and Indonesia is switching to palm instead of rubber as they find it more stable in returns.
Labour shortage has to be addressed seriously. Some countries have already made some adaptations in the frequency of tapping. Tapping is done once or twice in a week in some parts of the world with the help of stimulants.
I think in 20 years, countries with serious labour shortage will sell only crumb rubber. In Kerala, migrants from other states are being trained to do the job and it is being managed to a certain extent.
Some studies point out that with petrochemical cracker diets going light, synthetic rubber supply would be constrained. Do you think the discovery of shale gas and the change in crude dynamics will lead to more demand for NR?
It is a misconception. Synthetic rubber is very important in tyre manufacturing as the right combination of SR and NR gives the good properties of the product. My reading is that cheaper and efficient ways of producing SR will be found out soon by the industry.
Source: financialexpress.com
