Discussion on rubber prices-a study by atish jain

Auto sector growth to push up demand for rubber
Published on Wed, Nov 25, 2009 at 14:53 Updated at Wed, Nov 25, 2009 at 15:00 Source : Business Line
The progress achieved by the global automobile industry during the second lap of the current year gave a fresh impetus to the demand for rubber and it continues to scale further highs.
The weather changes due to global warming in most of the rubber producing countries have affected production. According to the assessment of the Association of Natural Rubber Producing Countries (ANRPC), rubber production will lower by 6 per cent this year.
Major consumers

China is the major rubber consumer and requires maximum rubber for its use now, since its stock position is very low. The US and the European countries are procuring large quantities of rubber. The industrial progress in Japan has also enhanced consumption in that country.
India, which overtook Japan in rubber consumption, made a record import during the current fiscal. The untimely rains and floods that followed reduced the availability of rubber from Thailand and interrupted the movement of rubber there. Once the rains subside, winter would commence.
According to weather forecasts, winter will be severe this year. This will also adversely affect rubber production.
It is estimated that annual rubber production in Thailand would be only within 2.5 million tonnes. But, in 2008, the production there was 3.1 million tonnes. In Malaysia too,tapping has been suspended due to heavy rains. Large-scale cutting down of trees intended for replanting has worsened the situation. The production loss of Malaysia during January-September was 24 per cent. Severe winter in Indonesia brought down the availability of rubber to very lower levels.
In India also, weather has curtailed production. Rubber production during the first seven months of the current fiscal was down by 9.4 per cent and reached 435,125 tonnes. Last year, the production during the same period was 480,230 tonnes. The rubber consumption shot up by 3 per cent and touched 536,100 tonnes. In the international market, where the price was ruling low during the early months, large- scale import of rubber by India brought relief to the deadlock in the market. India imported 126,472 tonnes during April-October.
Compared with the former years, the increase in imports was 233 per cent. By March next, the imports would reach 1.5 lakh tonnes. The export from the country touched almost the bottom lines.
During the April-October period, a consignment of only 3,859 tonnes was exported. But, in the previous year, at the same time, the export was 34,000 tonnes.
At the beginning of the current fiscal, the market commenced with a price of Rs 83.50 a kg for RSS 4 grade. The price has now shot up to Rs 118 a kg. The stock position at the end of October was 2.19 lakh tonnes. The stock last year at the same time was only 1.5 lakh tonnes.
The arrival of large quantities of foreign rubber to the domestic market could, in fact, help avoid a crisis.
Auto industry growth

The severe drought at the beginning of the year and the subsequent heavy rains all over in Kerala caused a setback to rubber production.
The growth achieved by the automobile industry was appreciable and it created similar repercussions in the tyre producing sector also. Some foreign tyre companies are desirous of investing in India to start new ventures. This will strengthen the demand for natural rubber.
While in the domestic market, RSS 4 is traded at Rs 118 a kg, the same grade is priced at Rs 123.56 a kg at Singapore Commodity Exchange (SICOM).
Availability reduced

Though September-December is a high productive phase for rubber, this year, it was not so favourable till the end of November. The availability was reduced due to climaticvariations. In November-December, the latex flow is very high. But heavy rains succeeded in disrupting tapping. Now, rain has almost receded and the days ahead would witness intense tapping and as a result of which, the movement of rubber to the marketing centres would also gather momentum.
But, even if arrival enhances the confidence that the possibility of a price crash is very remote gives more strength to the bullish trend prevailing in the market. However, prices would continue to rule above the Rs 100 mark in the coming days as is evident from the favourable wind blowing at present with prices touching Rs 118 a kg for sheet rubber.
Why global natural rubber prices are rising?
KOCHI (Commodity Online): Global recovery hopes, the crude oil rally and fall in output forecasted in key producing nations has helped sustain natural rubber prices at reasonably high levels in recent times. Production in Thailand, the world's largest producer and exporter of rubber is expected to drop this year on heavy rains disrupting plantation work in Southern regions. With the result RSS3 grade prices have risen to $2.46 per kg. News reports quoting Thailand Agriculture Ministry suggested that Thailand's output is expected to fall from 3.1 mn tonnes last year to below 2.5 mn tonnes in 2009. The major boost to rubber has come from the postive develoments in China whose industrial production and retail sales have zoomed by more than 16% as on October on an annualised basis. China being the largest consumer of natural rubber could boost demand in the days ahead. In India, there has been a demand supply mismatch as production has droped by 9.5% in the first seven months of the current financial year (2009-10) while consumption has risen by 3%. According to Rubber Board, production fell to 435,125 tonnes in April-October period, compared to 480,230 tonnes in corresponding period last year. Due to prevailing higher prices in international markets, Natural rubber (NR) imports declined 50 per cent in October compared with the same month last year. The imports fell to 8,574 tonnes against 16,010 tonnes in October last year. Consum;piton has edged up to 536,100 tonnes.India is the fourth largest producer of the commodity after Thailand, Indonesia and Malaysia. Till September, imports were on a rise due to a sharp increase in the local prices of the commodity . The international prices of RSS-3 grade were lower than the Indian prices, the difference being around Rs 17-18 a kg. This encouraged importers to utilise the price advantage. The rubber-based industry, especially tyre makers, also reaped the benefits of the global price advantage, leading to a rise in imports in the first half. This sharp rise in imports led to an increase in the rubber stock in India. By the end of October, the country possessed 219,000 tonnes of rubber as against 150,000 tonnes in the same period last year. At present, the price situation is in a reverse mode as the international prices are higher by Rs 7-8 a kg compared with the local prices. So, the imports have become unviable.India's tappable area has risen but fall in productivity has hurt the production prospects thus putting the prices in a stable to bullish mode, analysts said. So far rubber growers have had a remunerative farm gate price this year as futures and spot prices have ruled above Rs 100. According to Association of Natural Rubber Producing Countries, 2009 has witnessed a falling trend in global supply upto September.Total output in the seven countries accounting 93% of the global supply fell 5.1% in the 12 months to September 2009 as compared to the year ended December 2008. The output fall in the 12 months to August 2009 was 3.7% only.Malaysia has so far witnessed the highest drop in output at 19.3% while China has witnessed a fall of 17.9%. Malaysia Farm Ministry had expressed the hope that shortfall so far would be compensated by 26% expected growth in production in the September-November period. The fact that many countries have undertaken replanting replacing old trees during the 2003-09 period has also affected production levels which will be bridged only in the coming year. International Rubber Study Group (IRSG) in a report released in October points out that there has been a surge in new plantings in 11 Asian countries during 2005-08 period. These countries constitute 92% of total global output. The fact that tapping becomes after after 5th and 7th year of planting gives rise to the possibility that supply will surge strong enough to beat the present bull phase. In 2008 total new planting is estimated to have reached around six times the level of 2000.The consequences for total area are significant: more than one million hectares have been added during the period 2005-2008. Supply potential will show significant increases: the levels in 2015 and 2020 are expected to be around 30% and around 50% higher than in 2008, respectively.