Domestic users of natural rubber, reeling under the impact of record prices, have to gear up for another round of high rates in calendar 2011 due to the yawning gap between demand and supply but the trend in crude oil prices would also have a bearing on their fortunes.
India, the second top consumer and fourth largest producer of natural rubber in the world, is bedevilled by a widening supply squeeze in the last two years and industry experts see no early respite on this front.
As a result, prices of natural rubber, which rose to record high of Rs 203-205 a kg in 2010, would stay high and the rising trend is likely to continue through most of the new year, they said.
But any move by the government to slice import duties on natural rubber could alter the situation, trade officials said.
Similarly, prices of crude oil would also leave its imprint on rubber prices. Prices of natural rubber and crude oil have a co-relation as synthetic rubber, a replacement for natural rubber, depends on the price of crude oil.
Crude oil prices have risen to around $90 a barrel, and are expected to remain firm as demand expands.
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India’s natural rubber output in 2011 is projected to move up 4.3 per cent to 890,000 tonnes, while demand may rise five per cent to 1 million tonnes from 952,000 tonnes, according to initial estimates made by the Jakarta-based Association of Natural Rubber Producing Countries.
According to the association, demand and supply gap next year should be near 110,000 tonnes. Trade and industry, however, expect the gap to be wider at 150,000 tonnes.
Price
The tyre industry, the main consumer of natural rubber, is not optimistic of any major relief in rubber prices in the year ahead.
“I don’t see any major shifts in rubber price at least till the first half of 2011,” said Rajiv Budhraja, secretary general, Automotive Tyre Manufacturers Association.
Prices are likely to hover around high levels of Rs 200 a kg in the year ahead, said N Radhakrishnan, president, Cochin Rubber Merchants’ Association.
According to the present scenario, a major downtrend in price is likely only in the event of a sharp demand crunch, he pointed out.
“The chances of such developments are remote,” he added.
But Radhakrishnan said the rate of increase in price would be limited in 2011 compared with 2010.
“We may not see an increase of 80-90 per cent on year as happened this year,” he added.
The central government’s response to demands for cutting import duty on natural rubber to 7.5 per cent from 20 per cent is one factor likely to impact prices early next year.
Delhi High Court has asked the central government to file its response to a series of petitions filed by industry bodies in this regard. The case is posted for hearing on February 10.
Rubber prices staying around Rs 200 a kg during the peak production season is a matter of concern, Budhraja said adding that the situation could deteriorate in the lean months.
Output
Trade is also sceptical about projections of increased output by official agencies such as the Rubber Board.
“We are not convinced by the optimistic projections of increase in output,” said Budhraja.
Rubber Board projects an increase in output in the beginning of the year, but then makes downward revision towards the end of the year, he said.
This has been happening during the last two years, he added.
In 2009-10, the board had initially projected output at over 850,000 tonnes but later on scaled it down to 831,400 tonnes, a decline of 3.8 per cent on year.
According to G Mohanachandran, joint director, Rubber Board, production is expected to be higher on year with the tapping area likely to increase by nearly 11,000 hectares in 2011 as trees planted in 2003-04 have reached maturity.
Mohanachandran, however, admitted that the board would make a downward correction on its output and demand projection for 2010-11 (April-March), but did not give any reason. Rubber Board has currently projected output at 893,000 tonnes and demand at 978,000 tonnes.
Apart from demand and supply situation, factors such as trends in Asian markets like Bangkok and Tokyo may also influence the price, traders said.
The impact of climate change has left its impact on the rubber sector during the last two years. Unusually heavy rains or extreme dry climate has impacted rubber output in all major producing countries in South East Asia as well as India.