Volatility marks '06 for local rubber

The year 2006 has been volatile for the domestic natural rubber (NR) market.

At the beginning of the year, prices were around Rs 71 a kg, they peaked to the Rs 115 level in May, and as the year is drawing to a close, prices are now hovering around Rs 80.

After opening at Rs 71.25 a kg, natural rubber gathered momentum by February and edged up to the yearly average at the Rs 87.98 level. The last year average was Rs 60.68. Thus, the average price has been rising year on year and is expected to remain firm in 2007 as well.

The benchmark grade RSS-4 scaled its all-time peak in the market in 2006, when it touched Rs 115 a kg on May 27. Incidentally, for the first time in the 100 years-plus history of rubber plantation in the country, the market saw the magical level of Rs 100 a kg also in May, on the 19th to be precise.

Thus, 2006 turned out be a landmark year for both the over one million rubber growers and rubber-based industries of the country. The year saw a spiralling of natural rubber prices owing to a surge in prices across global markets "� mainly Bangkok and Tokyo.

The integration of the domestic market with the global markets made it possible for the country to export more than 65,000 tonne of NR for three years on the trot.

The quick dissemination of information regarding prices across the world "� even to the remote villages of Kerala and Tamil Nadu, for instance "� has also played a vital role in boosting the average price to the Rs 90 a kg level for the major part of last year.

As an indication of a strong market in the coming years too, RSS-4 is currently hovering around Rs 90, contrary to the earlier estimates in the peak production season.

By November, the country's total production touched 560,680 tonne, up 8.7 per cent over 515,595 tonne recorded in April-November 2005. However, consumption in the same period slowed down, as it rose only 2 per cent to 542,980 tonne. Rubber Board had projected a 5 per cent increase in consumption in tune with the country's overall economy growth.

In fact, a shift in the consumption pattern of the tyre segment towards synthetic rubber to offset the sharp rise in prices of natural rubber played a crucial role in slowing down the demand for NR.

The tyre industry's consumption, which had increased 8.8 per cent in 2005-06, slowed down to only 3.6 per cent growth this year. Besides, consumption of the non-tyre sector slumped to 0.01 per cent from 2.7 per cent.

What made the domestic market bullish until November is better performance on the export front. Thanks to higher exports, the country's stock position dropped to 94,755 tonne at the end of November. During the April-November period, exports posted a growth of 10.3 per cent at 49,891 tonne.

The main reason behind the growth in exports was the difference between domestic and overseas prices. Until November, India had been maintaining a price difference of Rs 8-10 a kg and, hence, the advantage.

On May 27, when the domestic market touched the record high of Rs 115, Tocom was quoting in the Rs 127 range. But the reversal in the market trend during the last couple of months has caused a setback to exports in November. This November, the country exported only 747 tonne compared with 12,440 tonne November 2005.

Higher global demand on the back of rapid growth of consumption in China and the strengthening of global economies "� Asian countries in particular "� has led to the uptrend in prices during 2006.

Besides, the increase in speculative activity in global markets; the rise in crude oil prices, which made synthetic rubber costlier; and the tight supply situation prevailing in major NR-producing nations have contributed the price escalation in the rubber mart.

And the same factors are expected to keep rubber prices firm going forward unless there is a sharp increase in production.

According to some recent estimates of market experts and traders, the RSS-4 grade will see a price range of Rs 85-95 a kg on an average in the coming year.

Prices might even cross the Rs 100 mark by April-May 2007, but the possibility of a sharp fall could be ruled out, they said. Further, domestic consumption is estimated to rise 4.5 per cent in 2007, though production too may increase 3 per cent.

Although nations such as Nigeria, Myanmar, Brazil, Vietnam and Thailand are in the process of expanding rubber acreage to 97,40,000 hectares, the additional planting will come into yielding only after 2012. According to International Rubber Study Group, tight supply situation is anticipated till 2020 as demand is on the rise the world over.