Rubber Declines as Stocks, Oil Slump After U.S. Raises Rate Share Business

Rubber Declines as Stocks, Oil Slump After U.S. Raises Rate Share Business

Feb. 19 (Bloomberg) -- Rubber declined, tracking a decline in crude oil and Asian stocks, after the Federal Reserve increased its discount rate, triggering concern that government stimulus programs are winding down.

Futures for July delivery in Tokyo fell as much as 0.9 percent after rising earlier to 300.2 yen per kilogram ($3,262 a metric ton), the highest level since Jan. 22. The contract closed at 294.6 yen, a 3.3 percent gain for the week.

Japanese stocks fell the most in two weeks after the Fed raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent.

“Equity market falls and declining oil prices spilled over to the rubber market, prompting investors to unwind positions,” Chaiwat Muenmee, analyst at DS Futures Co., said from Bangkok.

The MSCI Asia Pacific Index fell 2.3 percent to 115.16 as of 3:54 p.m. in Singapore, the steepest drop since Feb. 5, reversing this week’s advance.

Rubber also declined as falling crude oil prices reduced its competitiveness against rival synthetic rubber. Oil dropped for the first time in four days as the dollar’s rally weakened the appeal of the commodity as an alternative investment.

In the cash market, Thai shippers offered so-called RSS-3 grade rubber for April shipment at about $3.30 a kilogram today from $3.18 yesterday, said Kazuhiko Saito, chief analyst at Tokyo-based broker Fujitomi Co. Rubber trees shed leaves and latex output slows during wintering, the low-production season that normally begins in Thailand’s main growing areas in February.

Thai Output

Benchmark Thai rubber prices increased as buyers accelerated purchases on concern that the El Nino weather pattern may lower local production and boost prices, the Rubber Research Institute of Thailand said on its Web site today.

The price of unsmoked sheets gained 0.3 percent to 99.55 baht ($3) per kilogram. Ribbed smoked sheets added 0.3 percent to 103.12 baht a kilogram, according to the organization.

“Lower production in Thailand will drive prices further next week,” said Chaiwat. “We may see continued demand from China when the Shanghai market resumes next week but the demand growth may slow as some companies built up stock before holidays.”

The rubber market in Shanghai is closed this week for the Lunar New Year holidays.

Tyre industry may face shortage of natural rubber

Kochi, Feb. 19

Reports that Tata Motors has scaled down production of commercial vehicles by 5-10 per cent in January has sent tremors down the commercial vehicle industry in the country.

One of the main reasons stated is the shortage of key components such as bus/truck radial tyres. This scaling down of vehicle output was despite bus/truck tyre production in India growing by 39 per cent in December 2009 over last year. Bus/truck tyre output for the first nine months of the fiscal was up 11 per cent. Going by the accelerated pace of economic activity, the demand for heavy vehicles and thereby bus/truck tyres is poised to grow in the coming months.

Gearing up to meet the burgeoning demand, the industry announced a flurry of projects with investments totalling Rs 18,411 crore to be executed in the next couple of years. Most of these projects are to address the current shortages in the bus/tyre radial segment. Bus/truck radial tyre projects have been announced by industry majors such as Apollo Tyres, Birla, Bridgestone, JK Tyres, MRF, Dunlop and Michelin. Once these projects are executed, the industry should be in a position to meet the short to medium-term demands of the commercial vehicle sector.

Source of rubber

But the bigger question is where will the tyre industry source natural rubber from? With rubber demand poised to overtake supply in the short to medium-term, the tyre industry does not see very encouraging times in the immediate future, Mr Rajiv Buddhraja, Director-General of the Automotive Tyre Manufacturers Association of India (ATMA), said. Data provided by ATMA reveal that the existing installed capacity to manufacture 11 lakh bus/truck radial tyres would more than double to 26.2 lakh in 2010-11. Then it is poised to more than double to 62.4 lakh in 2011-12.

Fluctuations in output

Meanwhile, statistics available from the Association of Natural Rubber Producing Countries reveal that there have been severe fluctuations in Indian rubber production in recent years. After producing 8.53 lakh tonnes of natural rubber in 2006, there were several fluctuations with production in 2009 projected to dip to 8.17 lakh tonnes. The projection for 2010 is production could rise to 2006 levels, at 8.53 lakh tonnes.

In 2006, India was rubber surplus country with demand pegged at 8.15 lakh tonnes. With consumption in 2009 estimated at 9.04 lakh tonnes, India would become a rubber deficit country. The consumption for 2010 is projected to be 9.82 lakh tonnes. While there is little doubt that the consumption figures would be met, question marks linger on the production possibilities. However, the future holds some promise for the natural rubber sector.

New area coverage

There has been some growth in new areas coming under rubber plantations. From 14,800 hectares in 2005, the area under new rubber saplings shot up to 27,500 hectares in 2008. Despite the lag effect of seven years for rubber trees to yield, this augurs well for the industry. Question marks also remain over large areas with old and low yielding trees.

The pace of re-planting has been dismal: most often at less than 10,000 hectares a year. This compares very poorly with countries such as Indonesia which replanted 55,000 hectares last year and Thailand with 64,000 hectares.

On a comparative basis, other rubber growing countries are racing far ahead of India in bringing new area under rubber plantation. Thailand added 2.21 lakh hectares under rubber trees in 2008, Vietnam 75,000 hectares and China 49,000 hectares against 27,000 hectares by India.

India has a tough task ahead to bridge the gap between demand and supply of rubber in the coming years.

Continue stimulus, cut import duty on natural rubber, says tyre industry

New Delhi, Feb 15

The tyre industry wants the Government to continue with the fiscal stimulus, while reducing the import duties on natural rubber from 20 per cent to 10 per cent. It is also hoping for an anti-dumping duty on Chinese truck and bus radials.

The Government had reduced the excise duty on tyres from 12 per cent to 8 per cent, in two stages. The second excise duty deduction was in February 2009. “The stimulus provided by the Government benefited the industry during the slowdown and we hope that it continues. Also, the import of natural rubber attracts a very high Customs duty. Combined with this, the increasing prices of domestically grown natural rubber and its shortage have made it difficult for the industry. We hope the Customs duty on the import of natural rubber will be brought down. This will help in bridging the gap between the demand and supply of natural rubber, which accounts for almost 50 per cent of the production cost for the tyre manufacturers,” said Mr Neeraj Kanwar, Chairman, Automotive Tyre Manufacturers' Association (ATMA) and Managing Director, Apollo Tyres Ltd.

Mr Kanwar said there needs to be a correction in the inverted duty structure of the Government, according to which the import duty on tyres is 10 per cent, while the import duty on natural rubber is 20 per cent. He is also seeking an anti-dumping duty on truck/bus radial tyre imports.

“ATMA has already taken up this issue (of inverted duty structure) with the Government by seeking a reduction in duty on natural rubber from 20 per cent to 7.5 per cent, or alternatively, an increase in Customs duty on tyres from 10 per cent to 20 per cent,” he said.

Mr Rajiv Budhraja, Director-General, ATMA, said that while lower interest rates should continue, the tyre industry would also like to see a continuation of the stimulus even for the transportation sector, as in such a case, the “spin-off benefits” for the tyre sector are huge.

Timely completion

“We'd also like to see the infrastructure and road projects being completed on time. The Government needs to achieve the set targets in an accelerated fashion ,” he said. Besides all of the above, Mr A. S. Mehta, Marketing Director, JK Tyre, said that the industry would also like to see the anti-dumping duty on truck/bus radials imposed by the Government.

“We need it (the anti-dumping duty) to protect the domestic industry from Chinese products, which are around 30 per cent cheaper, due to the various benefits that the Chinese Government provides and the huge scales of manufacturing that they have. The domestic industry also has to be made strong enough,” he said.

The PHD Chamber of Commerce and Industry has asked for a waiver of Customs duty on raw materials not manufactured domestically, such as butyl rubber, and polyester tyre cord.