The sharp fall in crude oil price coupled with an increase in supply has badly hit the sentiments in the natural rubber (NR) market, leading to a steep fall in prices. Benchmark grade RSS-4 today quoted Rs 66 a kg which was Rs 73 on January 1. The market is likely to be in a bearish mode since major tyre producers are not keen on enhancing their inventory of rubber owing to various reasons.
The production season is fully active in all the producing areas of Kerala and this will prolong till the first week of February thanks to better climatic condition. So more rubber is coming to Kochi and Kottayam, two major markets of rubber in India. As the prices had dropped to Rs 62 a few weeks ago, the markets were devoid of rubber since growers were reluctant to sell the stock at such a low price.
When the price slowly increased to Rs 75 the supply increased sharply, but there were very few takers. This, coupled with the fresh production has made the markets flood with rubber, but rubber based industries are not in a position to swallow the stock fully even in a low price regime.
Most of the tyre companies are in deep crisis as the demand for tyre dropped by 40-50 per cent in recent months. The global economic slow down has critically affected the demand for tyre and due to this a major chunk of units have adopted a strategy to stop production for 5-10 days in a month.
Some units have been closed for weeks citing various reasons, but it is true that the tyre producing sector is in serious trouble. According to sources from tyre sector in the Original Equipment (OE) segment, there was 50 per cent drop in demand during last few months.
The replacement sector has not been affected very seriously, though there is a marginal dip in demand. This in turn affected the demand for natural rubber since tyre majors hardly need rubber in the current market scenario.
According to leading Kottyam based dealers major tyre companies had absolutely withdrawn from the market for quiet a long period. It is not feasible for them to stock huge quantities of rubber as the market is in troubled waters.
Meanwhile, giving a heavy blow to the natural rubber mart crude oil price is declining on a day by day basis. This naturally will cause a reduction in the price of synthetic rubber (SR).
It is learnt that the Indian manufacturers of SR are ready to supply at a rate of Rs 68 per kg including all taxes. While a kg of NR will cost Rs 77 including, taxes, Rubber Board cess and transportation cost.
According to experts SR price might further drop to a level of Rs 60 as crude oil market is on a strong bearish mode. This will be a serious threat to the NR market as the increase in consumption of SR may naturally cause piling up of stock in NR market.
