India elections and how it may turn out to be favorable for Rubber

By Sreekumar Raghavan
KOCHI (Commodity Online): Rubber prices crashed from a high of Rs 24000 per 100 kg to Rs 14000 per 100 kg in spot market for RSS 4 grade pushing the sector into a deep crisis. The latest report on automobile sales from SIAM (Society of Indian Automobile Manufacturers) show dismal numbers for production and sales of passenger and commercial vehicles in 2013-14 April to January period.

Amidst this dismal scenario, Arun Kumar Bajoria, President of JK Tyres made a statement that may give some relief to the industry: Tyre sales are expected to get a boost because of the upcoming general elections in the country.

He said that commercial as well as passenger car tyres will witness increased sales as there will be huge expenditure for preparation for the elections.

I don’t know how many in the industry shares Mr Bajoria’s view. May be he wanted to paint a rosy picture for the tyre industry among investors as the company has already seen its net profit for October-December 2013 quarter rise 56% year-on-year to Rs. 59.03 cr from Rs. 37.93 crore in the corresponding period last year. The turnover for the company for Q3 was Rs. 1,846.72 crore, an increase from Rs. 1,802.07 crore in corresponding period last year.

Perhaps, it was the upcoming elections that forced the Kerala Government to announce the market intervention programme for rubber which envisages procuring rubber at Rs 2 above market price which will continue till prices reach Rs 171 per kg. Unlike, sugar or any other commodity that is grown in Central and Northern India, rubber lacks political patronage at the centre as it is predominantly grown in the South Indian state of Kerala which has just 20 members in Parliament.

To be fair to them, they have offlate raised the demand for increasing import tariffs and even enforcing a total ban on imports but the powerful tyre lobby has ensured that it doesn’t happen. They have often cited shortage of rubber in domestic market to push ahead their case for increased imports.

The Opposition in the Kerala Assembly earlier this month had staged a walkout over the rubber price issue as Speaker refused to allow an adjournment motion moved by CPM MLA Suresh Kurup in this regard.

The State Government had urged the Commerce Ministry to utilise Rs 100 cr from the Price Stabilisation Fund to provide support to rubber prices. Oomen Chandy, Kerala Chief Minister said that the Commerce Ministry was sympathetic to the demnads of Kerala but the Finance Ministry had raised objections. Kerala Government was of the view that crash in global prices of rubber and falling automobile sales which in turn weakened demand for tyres contributed to the present crisis. However, the State Government has earmarked Rs 10 cr for price support activities and this would continue till prices reach Rs 17100 per 100 kg.

Worried over crash in prices, major producing nations are taking measures to face the crisis. Bloomberg reported that rubber shippers from Thailand, the largest producer, pledged to avoid selling below output costs as suppliers in Asia take steps to halt a slump in prices. Exporters should not sell ribbed smoked sheet below $1.90 or 62.70 baht a kilogram as the average output cost for growers in Southeast Asia is about 60 baht, said Chaiyos Sincharoenkul, president of the Thai Rubber Association.

At TOCOM, Rubber futures have bounced back after a sharp fall earlier this month with June contract rising to 228.5 Yen per kg. TOCOM Rubber has fallen 17% so far this year after losing 9.3% in 2013.

JK Tyre Chief’s view that elections may prove favorable for tyre industry and in turn rubber prices may turn out to be true as by that time rubber production will enter a lean season and there wouldn’t be enough supplies to meed demand. On the other hand positive economic data from USA and recovery hopes in China can also turn the tables in favour of rubber.

Commodity Online