Mar 25, 2011 (LBO) - Sri Lankan rubber prices have recovered after a temporary fall triggered by overseas demand and supply factors, and look set to stay strong on rising global tire demand, trade officials said.
Natural rubber prices at the Colombo auctions hit record highs in February and then slumped sharply after increased supply from key East Asian producing nations and fears Japan's disaster could disrupt automobile manufacture.
"The market came down for one week," said Upali Bandaranayake, director of brokers Forbes& Walker.
"There was a favourable crop in Thailand and Vietnam. They need to sell every day because they get huge crops, unlike here. So there was selling pressure," he explained.
"On top of it, there were fears that Japan's vehicle industry will collapse. So because of the uncertainty there were no buyers in the market."
But with resumption of vehicle production by major auto manufacturers, demand for rubber recovered, given the requirement for its use in the manufacture of tires, tubes and tire-related products.
Amanda Weerasinghe, managing director of Almar Trading, a big rubber trader and exporter, said the main TPC 1X grade, which had fallen to 500 rupee levels, rose to 650 rupees a kilo at the beginning of this week.
This was a "fabulously good level," Weerasinghe said, adding: "Plantations will make millions."
TPC 1X prices hit a record 700 rupees a kilo level in mid-February which Weerasinghe described as "abnormal".
"The fall in the world market was driven by sentiment," he said. "But in one week there was a complete reversal."
Overseas markets crashed with the problems in the Middle East and Japan's earthquake and tsunami adding to the negative sentiment.
"Anyway, we're in the wintering period all over and crops are down. So the entire picture has changed again," said Weerasinghe.
"The fundamentals are extremely strong," he added, referring to strong demand from countries like China, India, Brazil and Russia.
Japan's own vehicle output might drop but some production might shift to other countries like China and overall demand remains very strong.
Over 75 percent of natural rubber in the world is used for the tire industry.
Rubber prices have been high in recent months also because global production and cultivation were affected by bad weather last year with heavy rain inundating parts of key growing countries like Thailand, preventing tapping of trees.
Bandaranayake of brokers Forbes& Walker said there was "huge domestic demand in India and China" with vehicle production being ramped up.
"The Indian tire industry is expecting 8-12 percent growth for the next 3-4 years."
Increasing global vehicle production means demand for rubber will exceed supply.
"If that demand is there and oil prices move up, sending synthetic rubber prices high, there's no reason for the natural rubber market to collapse," Bandaranayake said.
He expects natural rubber prices to remain around five US dollars a kilo kg for at least the next year or two.
Weerasinghe of Almar Trading said demand for rubber will get a fillip from Sri Lanka's own vehicle imports which shot up after the government slashed import taxes last year.
"Overall local demand is going up. We expect good prices for rubber in the coming months."
source - www.lbo.lk
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