Natural rubber prices are at their highest-ever, as heavy rain hampers production, increasing concerns that supply may not keep pace with demand
Natural rubber prices have climbed to record highs and are likely to continue to climb in the near-term on falling output by major rubber-producing countries and higher demand from consumers, particularly tyre manufacturers.
On Thursday, the prices extended their gains to hit a new record high of Rs213 a kg in the Kottayam market and Rs214 in Kochi, even as prices in overseas markets rallied on a supply shortage.
"The price of natural rubber in the international market is increasing sharply and that trend is reflecting in the domestic market too," George Vally, president, Indian Rubber Dealers' Federation, told Moneylife. The price went up by Rs2.50 a kg on Thursday after a one-rupee gain the previous day.
"The current price trend is driven by non-availability of production due to unseasonal rain on account of which the state missed out a favourable period of harvesting," Santosh Kumar, head of rubber sales at Harrisons Malayalam, told Moneylife. "The international price trend is also a factor." The RPG group company, which is based in Kochi, is India's largest producer of rubber and pepper.
Prices in the international and domestic markets have been rising daily since the start of the month. Yesterday, in Bangkok, the natural rubber price was at $525 per 100 kg. On 4th January, spot natural rubber in Malaysia climbed to $497 per 100 kg from $488 on 30th December 2010. In Thailand, the largest supplier of rubber, the price was at $502 per 100 kg on 4th January compared to $495 on 30th December 2010.
Mr Vally said, "Prices may go up further as there is still a difference between domestic and international prices." Mr Kumar added, "The prices will rule high till May."
Natural rubber is the main raw material for tyres, and prices have been moving upwards over the past two months, following heavy rain in rubber-producing countries in Southeast Asia that interrupted tapping and plantation activities.
The Association of Natural Rubber Producing Countries (ANRPC) has lowered its estimate for global natural rubber production in the October-December 2010 period, saying it would be down by 6.3% in the quarter compared to the previous corresponding period. It had previously estimated a 3.8% drop for the quarter. ANRPC represents countries that account for 92% of the global rubber output.
The association estimates that the production in India would be 4.6% lower in the October-December period from that in the corresponding period a year ago. This is a change from the 1.8% drop it estimated earlier. It attributes the lower production to the unseasonal rain in Kerala, the largest rubber-producing state in the country.
The dealers' federation chief said that while the market expects a slight slowdown in production in India, growth in production is taking place. "I don't see any fall in production in the current year," Mr Vally said. "The rising price of natural rubber globally is encouraging rubber producers to increase production, and now the weather is very favourable."
The Rubber Board of India expects the country's yield area could expand by 14,000 hectares in 2011, helping supply to grow at 5.3% to 890,000 tonnes during the year.
"There is heavy rain in rubber-producing areas in Kerala which may hamper production, but tapping goes on in summer also," Mr Vally said. "Normally tapping gets over by January, but it would be extended till March. As per the Rubber Board of India, we have a stock of three lakh tonnes, so we won't face a deficit."
However, there is another point of view which suggests that there will be a drop in production despite the extended tapping season. "Tapping may go on till March as rain got delayed this year, but the quantity will drop. When does the drop take place, we need to look into," the Harrisons Malayalam official said.
The increase in demand for tyres from auto makers in India and outside is another reason for rising rubber prices. According to the Automotive Tyre Manufacturers' Association, production of tyres increased by 15% to 8,56,396 in November from the corresponding period a year ago. Export of tyres also increased by 19% in November on higher demand. Tyre output in the first eight months from April to November surged 26% to 7.7 crore from the previous corresponding period.
source - www.moneylife.in
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