The unprecedented rise in NR prices across the globe of late is mainly driven by the glaring mismatch between supply and demand. What has triggered the Sri Lankan NR prices to hit the peak of Rs. 654/= per kilo for Latex Crepe1X (LCIX) and Rs.625/= per kilo for RSS1 in the third week of January 2011, are also apparently due to deficit supply. Although, the January 2011 average was; LC1X, Rs 621.91; RSS1, Rs 592.15 and 1Xbr, Rs 538.06, but the LC1X price came down to Rs 600/=, in the first week of February,2011. At the end of last week, however, 2000 kg of the same grade fetched Rs. 685/= per kg.
Rubber production in January to October 2010 had been 127.9 mn kg which was 12.4% higher than the production of 113.8 mn kg in the same period in 2009, but the increase in production came down to 11% at the end of November. Due to adverse weather conditions in the rubber growing areas, production in November and December dropped sharply. This led to a total production of 150.0 mn kg in 2010, which is only 9 % higher than the production of 137.0 mn kg in 2009.
A look at the average annual growth of NR from 2006 to 2010, in major NR producing countries reveals that growth in respect of yielding area in Thailand, the largest producer, is 2.2%, Indonesia;0.4%; Malaysia, -4.1%; India,1.2% and Sri Lanka,-0.5%, where as in respect of growth of average yield and total production Sri Lanka's figures of 7.3% and 6.9%, respectively are much higher than the other leading producers of NR, for Thailand it is -1.1 and 1.1 respectively, for Indonesia, it is -0.7 and -0.2 respectively, Malaysia, 2.1 and -5.1 and for India, it is -0.3 and 1.0 respectively.
China and Vietnam are exceptions; the growth of their yielding areas had been 5.6% and 5.7%, respectively. This gave them a higher production growth of 5.6% and 8.5%, respectively.
The drop in production seen in November/ December, 2010 in Sri Lanka may have only been a minor contributory factor for the upswing at the Colombo Auctions to unsustainable levels, as Sri Lanka's productivity and total production had been on the rise over the last few years, but there may be many other factors over which the Sri Lankan rubber industry has very little control
Ribbed Smoked Sheets (RSS)
The maximum auction price recorded in 2010 for RSS1 was Rs. 539.50 per kg on December 31, 2010, while the minimum of Rs. 317.50 per kg, and was observed on January 05, 2011. Monthly averages showed a steady increase towards the end of 2009 despite the sharp decline in October 2008 due to the global economic crisis which had a set back in the automobile industry, a major consumer of NR. This trend continued until April 2010 to about Rs. 430 per kg and the prices were observed in the range of Rs. 375 per kg and Rs. 425 per kg till September. As can be seen from Fig. 1, the price/kg increased sharply from Rs. 375 in September to Rs. 510 in December 2010. This trend continued into 2011.
Latex Crepe (LC)
The prices of LC1X in 2010 ranged from Rs. 310/kg (2nd February) to Rs 594/kg (23rd December). The upward trend in 2009 continued until July 2010 reaching about Rs. 500 per kg. The prices dropped below Rs. 500/kg in August and September but picked up subsequently to reach the peak for the year at Rs. 570/kg in December (Fig. 2).
Fig. 2. Monthly variation of auction prices of LC1X in 2008, 2009 & 2010
January, 2011 auction averages for different rubber grades; viz. RSS, latex crepe and scrap crepe are given in Table 1, all showing attractive trends, but unlikely to be sustainable
The changes in annual average prices from 2000 to 2010 for RSS1 and LC1X are presented in Fig. 3. The RSS1 prices were higher than the LC1X prices or at least equal to LC1X prices from 2000 to 2009. The difference of annual average between LC1X and RSS1 in 2010 was Rs. 49.00/kg. This difference accounts for a 13% increase in LC1X price over RSS1 price. Prices of LC1X were above the RSS1 prices from May to December in 2010 (Fig. 4). There was a difference of Rs. 126/kg between these two grades in October but the difference narrowed down to Rs. 60/kg in December.
The current global NR market boom is driven by strong market fundamentals rather than speculation. Demand- supply fundamentals at least for two years or so will be favourable for NR prices to stay high, but may not be at the current levels. However, it is unrealistic to judge NR prices on demand and supply alone.
There are other factors influencing the rubber market, such as crude oil price (although it has now come down from US$ 103 to US$ 85, it is likely to go up due uncertainties in the Middle East), Japanese yen, currency strength of exporting countries, commodity speculation etc. However, possibility of a price crash in the coming years is remote provided Asian economy stays strong. Not just in Sri Lanka, but globally, there is a demand- supply gap which is increasing every day, but it should narrow down and be remunerative to both the producers and consumers. The inclement weather plays spoilsport for both the growers and rubber goods manufacturers, alike.
It must however, be remembered that the rubber industry is very sensitive as the price of rubber is highly vulnerable to any fluctuations in global economy and industry. Also, prices of NR are not uniform, as they vary across types and grades, with variations between RSS, Crepe and TSR grades and also between markets ( Email; treecrops@gmail).
source - www.dailymirror.lk
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