By Rutam Vora (Commodity Online)
At a time when rubber prices in India have touched the all time high levels of Rs.173.5 per kg in recent trades, the rubber economics in the country hints at further rise in the prices of the plantation commodity.
Looking at the nature of the India’s rubber plantation it is evident that production is subject to climatic conditions in the growing regions. The rubber plantation in India, which holds about 9% of the world rubber production, is located in the single tropical region, Kerala, which increases the vulnerability of the plantation against the seasonal fluctuations.
At the onset of monsoon in the rubber growing regions in Southern region of India, which holds over 90% of the rubber production in the country, the production slackens resulting into reduced arrivals of rubber in the markets.
In an interaction with CommodityOnline, Anand James, Chief Analyst, Geojit Comtrade maintained that reduced arrivals in Kerala's natural Rubber are more of a seasonal pattern. “The supply side will improve only with long term plans, with increase in replantation of old trees, increasing yield and acreage under cultivation etc. However, situation faced is more of a demand spike rather than a supply crunch,” James maintained.
Giving the overview of the present rubber demand condition in India and overseas, James informed that total vehicle sales in India grew 30% in May, while exports grew 30%. Vehicle Sales in Japan, US, and China have all registered scintillating growth YoY, underscoring the fact that these economies are resilient after the recent global financial crisis and that consumer demand is on the bullish side.
The rising demand is also reflected from the falling warehousing status on rubber exchanges. India’s leading commodity exchange Naitonal Multi Commodity Exchange (NMCE) warehouses have witnessed a sharp fall in the stocks, which fell from over 7000 two months back to less than 700 now. Shanghai warehouse stocks have fallen from over 30000 T to less than 10000 now.
When asked where the rubber prices are headed towards in coming months, James said, “Indian Natural Rubber prices should trend towards 200-220 levels in the next quarter.”
However, considering the woes of rubber consumers, which was reflected from their agitation to the government seeking a ban on futures trade in rubber and asking for import relaxation, James maintained that extremities in prices are always harmful to one participant in the value chain. High prices affect consumers, while low prices affect producers.
“For the sake of a vibrant market it is inevitable that both of these participants or the intermediaries for that matter do not get wiped off due to extremeties in prices. However, it is equally important, if not more, that these participants remain reasonably informed and equipped to adjust to price volatility,” the analyst maintained.
“Indian Rubber Futures trading is an excellent platform to the extent that it has enabled the participation of almost all stakeholders in the value chain, including farmers to speculators/traders to investors to hedgers to actual tyre manufacturers. Most crucially, this platform has enabled a price transparency across India, and information dissemination (like price/warehouse info of Shanghai, Bangkok etc.), which were earlier restricted to a few,” said James adding that if a ban would be imposed, this would be the first causality of that move.
“Import Duty's relaxation in its isolation will not dissolve the price situation, either,” he maintained adding that in case of sugar and wheat the restrictive measures did not help much to bring down prices, or improve the demand-supply mismatch for that matter.
Globally, natural rubber prices continued rising. The uptrend was seen for the third straight day on Friday with fears that heavy rains will hurt output in Thailand.
Tokyo rubber futures rose 1.5% on Thursday after a 3.8% rise earlier in the week. Thailand, the world’s largest natural rubber producer, continues to receive heavy rains in key rubber plantation area and the rains are not expected to dissipate any sooner.
On the Tokyo Commodity Exchange (TOCOM), NR for November delivery was up by 4.3 yen to 285.2 yen/kilogram ($3,184/metric ton) before settling at 284.7 yen Friday.
Meanwhile, the global demand for natural rubber is expected to continue tight with China, the world’s largest importer of natural rubber, is believed to increase its imports of NR to 1.68 million tons this year, up from 1.59 million in 2009. Analysts expect rubber prices to increase roughly 26% next year.
source - http://www.commodityonline.com
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