A sticky situation to tackle

The industry is battling several threats... and losing ground.

Stretch marks are showing on the rubber industry across the globe. For, futures trading, hoarding and erratic market behaviour threaten the industry.

The February-April period is normally an "off season" for rubber production in Kerala, the state accounting for 92 per cent of the commodity's production in India. But low production does not always mean a rise in rubber prices.

Currently, the price tag of bench-mark grade RSS-4 is somewhere below Rs 90 per kg, closing at Rs 87 per kg last week. Even spot prices went down to Rs 85 per kg, to recover later.

In December 2006, natural rubber prices touched Rs 95 per kg, while the spot market registered Rs 100 per kg on January 27, 2007, and then Rs 101 per kg in February. This is despite the fact that the October-January period accounts for 45-50 per cent of the annual rubber production.

The early-2007 movement indicated that natural rubber prices would touch Rs 150 by March-April. But the market moved just the opposite way, with natural rubber prices going below the Rs-90 mark. Experts blame hoarding for such abnormal market behaviour.

In 2006-07, India imported a record 85,048 tonnes of natural rubber; in 2005-06, 45,285 tonnes were shipped in.

On the other hand, natural rubber exports have slipped. While India exported 73,830 tonnes of natural rubber in 2005-06, exports slipped to 55,309 tonnes in 2006-07.

The upswing in imports and dip in exports is the result of a continuous growth in consumption.

Total natural rubber production registered a growth of 6.3 per cent in 2006-07, while domestic consumption growth was pegged at 2.4 per cent.

However, even this production-growth rate could not keep pace with growing consumption, the result of which was an increase in rubber import in the fiscal.

Just like forward contracts, volatile price movements upsets spot prices in the rubber industry. The May contract in the National Multi-Commodity Exchange touched Rs 8,400 per quintal last week, while three other contracts were hovering below Rs 9,000.

These depreciating trends have been observed in the global market too, adversely affecting the price levels.

In determining price levels in the rubber industry, it has been observed that whenever rubber stocks go above the 150,000-tonne mark, there's a steep fall in prices.

As on March 31, 2007, India's rubber stock was 161,000 tonnes, one of the largest in 40 years of rubber trading in the country, according to the Rubber Board's estimates. This happened due to an anticipated price increase during March-April.

However, it turned out to be a curse for more than a million farmers and workers involved in rubber production.

On the other hand, when the closing stock of 2005-06 was 93,000 tonnes (below the 150,000-tonne mark), prices touched Rs 110 per kg on June 12, 2006, the highest ever recorded in India.

In 2001-02 the rubber stock went up to 193,000 tonnes and prices plummeted to Rs 26 per kg. This is despite the fact that the FY 01-02 recorded the highest production ever in the Indian rubber industry.

Production in the rubber industry will pick up by next month. From May to July, it's rubber-tapping time and with the Met department forecasting a good monsoon in Kerala, it's good news for the industry. But for the moment, in anticipation of an upward trend in rubber production, there is a slowdown in rubber-based production units, particularly in the tyre sector.

Current market parameters do not forecast a sharp upswing in natural rubber prices, but prices are expected to remain between Rs 85 and Rs 95.

SNIPPETS

Some hope for the future
India's natural rubber production is poised to go up 2.5 per cent in the current financial year, according to the Rubber Board's projections.

Total production is projected at 874,000 tonnes as against 853,000 tonnes in 2006-07. The increase in consumption will be sharper at 4 per cent (853,000 tonnes), leaving a gap of 21,000 tonnes between production and consumption.

According to the provisional estimates of the board, total consumption during 2006-07 was 820,000 tonnes.

During the last fiscal, production registered a growth of 6.3 per cent, while consumption went up only by 2.4 per cent. Fiscal 2006-07 has also registered the highest import of natural rubber to the country. Total imports surged to 85,048 tonnes, although the Rubber Board originally estimated this at 45,000 tonnes.

In 2005-06, India's total import was 45,285 tonnes and global prices were not favourable for a surge in imports in the beginning of the financial year. As the year progressed, Indian tags had become higher than the global rates and hence the flow of imported rubber to the country.

Likewise, export had suffered serious setbacks during the last fiscal at 55,309 tonnes, while the board originally projected 65,000 tonnes of rubber exported.

In 2005-06, total export was 73,830 tonnes and reversal of the projections on import and export had finally caused one of the highest stock at 161, 000 tonnes in 2006-07.

Synthetic highs
Though marginal, there has been a significant increase in synthetic rubber consumption. This has been caused by the increase in the demand for synthetic rubber from the manufacturing sector "" particularly the tyre industry.

On the other hand, a steady shift towards synthetic rubber has also been observed in production too. This, and the fact that natural rubber prices have been on a steady rise every year, has resulted in lower-than-expected growth in natural rubber.

In the April-December period in 2006, total consumption of synthetic rubber went up to 203,575 tonnes, compared with 176,860 tonnes in the same period in 2005. A few years back the natural rubber and synthetic rubber consumption ratio was 77:23. The ratio changed to 75:25 in 2006-07.

Till December 2006, consumption of natural rubber by the tyre sector grew at the rate of 3.6 per cent, down from 9 per cent before 2006.

The increase in natural rubber consumption in non-tyre sectors was 0.9 per cent in 2006-07, down from 2.6 per cent in 2005-06.