Rubber to remain steady in FY09

Domestic natural rubber price may remain steady, moving in a narrow band in 2008-09 (April-March), industry experts said. They expect output to be marginally higher than consumption during the year.

According to Rubber Board's projections, output will reach 895,000 tonnes while consumption is pegged at 891,000 tonnes during the year.

Carryover stock, seen at nearly 180,000 tonnes by December, is also likely to keep the commodity under pressure, dealers said. The benchmark RSS-4 grade may stay in the Rs 85-90 a kg range in the year ahead with a Rs 5-10 difference on higher or lower side, said N Radhakrishnan, president, Cochin Rubber Merchants' Association.

"There are no signs of any sharp fall or uptrend happening in rubber price in the year ahead," he said.

GLOBAL DEMAND SUPPLY

Demand and supply at the global levels and fluctuations in trend setting markets such as Tokyo rubber futures will also influence rubber price here, dealers said.

International Rubber Study Group, an inter-governmental body monitoring global rubber industry, sees the output at 10.31 million tonnes in 2008 (January-December), compared with 9.80 million tonnes a year ago. Consumption is estimated at 9.97 million tonnes compared with 9.73 million tonnes in the previous year.

Global demand is mainly driven by China with an annual consumption of around 2.6 million tonnes in 2007. The US, Japan and India are the other major consumers of rubber in the world.

A section of dealers, however, said fundamentals that have helped trigger an uptrend in domestic rubber price from 2005 remain largely unchanged. They see the commodity staying firm in 2008. A rise in Chinese consumption, firming up of crude oil prices and speculative activities in commodity exchanges are main triggers that pushed up rubber price. There is not much change in these factors and rubber may stay firm, they said.

IMPORT AND EXPORT

Natural rubber import to India is expected to be over 90,000 tonnes in 2007-08 compared with 87,000 tonnes last year. The exports, however, will register a sharp fall, as in April-November it dropped to 18,262 tonnes compared with 50,045 tonnes in the year-ago period.

The decline was mainly owing to a rise in domestic demand. A slowdown in demand from overseas buyers over quality issues also affected the exports. Export of sub-standard commodity has created a negative impression about Indian rubber, said Radhakrishnan. The narrow gap between international and domestic price in 2007-08 also added to the decline in exports, he said. In 2006-07, domestic prices were lower than international prices, which helped push up the exports, he said.

VOLATILITY IN MARKET

A section of the dealers also cautioned rubber prices may be volatile in the year ahead due to speculation, especially in futures markets.

Holding back of stocks is also putting pressure on the commodity.

All India Rubber Industries Association has requested the Centre to allow duty-free import of around 100,000 tonnes of rubber.

At present, import of natural rubber attracts a customs duty of 20 per cent.

The reason for the huge carryover stocks is the speculative hoarding by sellers, a dealer said. The carryover stocks as of November stood at 142,000 tonnes even as the output declined 10 per cent on year to 506,035 tonnes in April-November.

Rubber Board estimates output in 2007-08 at 819,000 tonnes and consumption at 57,000 tonnes.