Rubber prices flare up to Rs 180/kg on lower arrivals

Rubber prices flare up to Rs 180/kg on lower arrivals
Farmers withhold produce, rains affect tapping.
Stretching gains

Industry doesn’t find any evidence of the two lakh tonnes-plus buffer stock as stated by the Rubber Board.

Due to continuing inverted duty structure, imports are not a viable option.

Aravindan

C.J. Punnathara

Kottayam/Kochi, June 28

Sheet rubber prices for RSS 4 grade flared up to Rs 180 a kg on Monday on lower arrivals, partly on account of the rain arresting tapping operations and farmers withholding stocks. Despite the high prices and low arrivals, there was fair amount of buying from the market, mainly by the big tyre companies.

Mr Sajen Peter, Rubber Board Chairman, expressed his satisfaction over the rise in rubber prices. But he pointed out that the difference between the domestic and international price is Rs 10.

‘Harmful’

Further rise in rubber prices is not in anyway beneficial to the rubber industry and it appears to be unhealthy to the rubber sector as a whole, said Mr George Waly, President, Indian Rubber Dealers Federation at Kottayam.

“Rubber prices have been on a steep upward trajectory over the past few weeks and have touched a record high level of Rs 180 a kg. Industry is compelled to buy its most critical raw material at such unprecedented prices and absorb most of the hike, since the entire price hike cannot be passed on to the end consumers,” Mr Rajiv Budhraja, Director-General of the Automotive Tyre Manufacturers Association, said.

FRESH STOCKS

Of equal concern to the industry is the fact that most of the stocks in the market are fresh stock. Industry doesn’t find any evidence of the two lakh tonnes-plus buffer stock as stated by the Rubber Board. This further lends credence to the industry’s contention that the buffer stock is only on paper. At these prices points, rubber prices have even overshot international prices by Rs 6-8 a kg in case of sheet rubber and Rs 20-25 a kg in case of block rubber. However, due to continuing inverted duty structure, imports are not a viable option either, Mr Budhraja added.

Meanwhile, there were hardly any buyers for lower grade lots in the market and arrivals were virtually nil. The lower grades were most often bought by smaller companies mainly manufacturing cycle and rickshaw tubes that have totally gone off the market, Mr N. Radhakrishnan, former President of the Cochin Rubber Merchants Association, said. Cycle and rickshaw tyre and tubes are highly price-elastic and consumers will not be willing to buy at the current high prices.

Also, there was relative convergence between rubber futures and spot prices. While the divergence between rubber futures and spot prices had flared up last month in anticipation of lower tapping and subdued arrivals in the market, that trend seems to be reversing at the moment, a trader in the futures market said.

Arrivals may rise

Besides, arrivals are expected to perk up in the coming months as the monsoon begins to wane and the productivity of the trees increases. There is also apprehension that with international prices lagging behind domestic prices, how far could the price surge be sustained in the market. But the growers are happy reaping windfall gains which they would not have believed possible six months ago.

Reports also indicate that there have been not been significant slowdown in tapping operations due to the monsoon. The intermittent nature of the rains and high prices have encouraged the farmer to continue with his tapping operations. Also, over 75 per cent of the rubber trees are rain guarded in order to pursue unhindered tapping operations even during the rainy season.

Spot rubber continued to explore record highs on Monday. The market opened with a gap after being closed for a hartal on Saturday and improved sharply on covering purchases to fill the gap between the domestic rubber futures on NMCE. Sheet rubber flared up to Rs 180 from Rs 177 a kg, gaining further strength from short supplies. Meanwhile, intensified rain was reported from the plantation areas and the market made all-round gains even amidst below-average volumes.

On the National Multi Commodity Exchange, the July series weakened to Rs180.51 (181.94), August to Rs 173.75 (174.53), September to Rs166.98 (167.93) and October to Rs 162.90 (164.54) a kg for RSS 4. On Tokyo Commodity Exchange, the July futures increased to ¥367.1 / Rs 189.66 (¥363.7), September to ¥321.3 (¥319.9), October to ¥300.2 (¥297.7) , November to ¥289.5 (284.7) and December to ¥283.8 (278.6) while the August futures closed flat at ¥340.2 (¥ 340.2) a kg for RSS 3 during the day session. The July futures slipped to ¥365 (Rs 188.54), August to ¥335.9, September to ¥319.5, October to ¥299 and November to ¥289 while the December futures closed steady at ¥283.8 a kg during the night session. RSS 3 (spot) firmed up to Rs 170.95 (169.98) a kg at Bangkok. Spot rubber prices (Rs/kg) follow: RSS-4: 180 (177); RSS-5: 178 (174); Ungraded: 176 (172); ISNR 20: 158 (156) and Latex 60 per cent: 127 (122).



Bouncing high on rubber
KG Kumar

As the price of natural rubber (RSS-4 grade) touched an all-time high of Rs.174 last week, Kerala's rubber planters are agog with the prospect of more gains.

From a low of around Rs 25 a kg almost ten years ago, the price of natural rubber has soared the past month, as has the price of latex, which now commands a price of around Rs 120 a kg, compared to Rs 100 a month ago.

The recent price spike has been triggered by lowered stockpiles in China – the largest consumer and the world's largest auto market – which, in turn, caused futures in Tokyo to climb to $3,231 a tonne.

Blame – or praise – the monsoon rains for this phenomenon.

As the heavy rains hamper rubber tapping – rainfall has also disrupted production in Thailand, the world's biggest producer and exporter – demand for rubber remains while supply stays tight.

And yes, rubber planters can still go to sleep tight under their blankets since prices are forecast to rise.

According to commodity analysts, soaring oil prices and increased domestic demand from automobile manufacturers will continue to push prices upwards.

Wherever you place the blame – futures trading or unregulated imports –.the trend, experts say, is for rubber to reach a level of Rs 200-220/kg in the next quarter.

Will this price level hold? Remember, rubber is essentially elastic – what goes up must ultimately come down.

According to the International Rubber Study Group (IRSG), global automobile manufacturers have scaled back production, cut jobs and closed factories due to declining demand, causing rubber futures to dip.

Rubber planters face a deadly combination – a worldwide economic slowdown, a deepening slump in the global automobile industry, and continuing low oil prices

As the fourth largest producer of natural rubber in the world, after Thailand, Indonesia and Malaysia, India, with a share of between eight and nine per cent of the world's production, ought to be chary.

All the other rubber-growing giants are striving to increase productivity, but Kerala's rubber planters are happy raking in the easy money. According to the Kerala State Planning Board's Economic Review, the Stateaccounts for 81 per cent of the area under rubber in the country.

The coverage under the crop in 2008-09 was 5.17 lakh ha, higher by 5430 ha. over the previous year.

But productivity, which was 1,903 kg/hectare per year in 2008, dropped to 1,796 kg in 2009.

Unless Kerala's rubber planters pull up their socks and tend to their plantations with the zeal displayed by their competitors in Thailand, Indonesia and Malaysia, they cannot expect to ride the price tiger for long.



Rubber Climbs to One-Month High as Supply in China Declines
Posted: 27 Jun 2010 11:44 PM PDT
By Aya Takada

June 28 (Bloomberg) -- Rubber advanced to a one-month high after data showed stockpiles in China, the largest consumer, declined to the lowest level in seven years.

Futures in Tokyo climbed to 288.6 yen per kilogram ($3,231 a metric ton), matching a high reached on May 28. The price gained 3.8 percent last week, booking the second weekly increase, as rainfall disrupted production in Thailand, the world’s biggest producer and exporter.

Natural rubber stockpiles monitored by the Shanghai Futures Exchange dropped 1,670 tons to 14,771 tons, the bourse said on June 25. It was the lowest level since January 2003, according to the Bloomberg data.

“Chinese buyers may have withheld rubber purchases amid speculation that the raw material prices would drop on a seasonal increase in production,” Kazuhiko Saito, an analyst at commodity broker Fujitomi Co. in Tokyo, said today by phone. “As rubber prices have stayed high,” they may step up buying to replenish inventories, he added.

Rubber for December delivery rose to 284.1 yen at 10:44 a.m. local time from its settlement of 278.6 yen on June 25. It has become the most-actively traded contract on the Tokyo Commodity Exchange after its listing on June 25.

November-delivery rubber on the Shanghai Futures Exchange added 1.7 percent to 22,265 yuan ($3,278) a ton at 9:47 a.m. local time. Earlier, it rose to 22,355 yuan, the highest level since June 2.

China Demand

China, the largest auto market, is the biggest consumer of natural rubber. The nation may increase gross imports of the raw material to 1.68 million tons this year, from 1.59 million in 2009, according to a May report from the Association of Natural Rubber Producing Countries.

The benchmark price in Thailand added 0.8 percent to 118.85 baht ($3.67) a kilogram, supported by limited supply and growing auto demand in many countries, the Rubber Institute of Thailand said June 25. The group, which reviews the price once a day, issues new data in the afternoon.

Rubber prices may climb 26 percent next year as supplies lag behind demand, according to Royal Bank of Scotland Asia Securities (Singapore) Pte.

Natural rubber may average $4,500 a ton next year, up from $3,580 a ton year-to-date, as “heavy rainfall in southern Thailand has disrupted supply” and “inventory levels in China are worse than we expected,” Nirgunan Tiruchelvam, a commodities analyst at the bank, said in an e-mailed report last week.

(bloomberg.com)





Climate change hits rubber productivity: Sajen Peter, Chairman, Rubber Board
Posted: 27 Jun 2010 11:37 PM PDT
A commodity that has wide industrial use and is largely produced by one million small growers, rubber always makes headlines whenever there are price fluctuations. While growers try to maximise their returns from the crop, user industries try to minimise raw material costs. In the midst of these opposing pulls and pressures, the government is making crop-specific intervention through the Rubber Board and the latter has been effective in increasing the acreage under the crop. Sajen Peter, the chairman of the Board, who is completing his tenure this August, spoke to S Sanandakumar on a variety of topics ranging from supply and demand and the impact of climate changes.

Climatic changes and their impact on crop production, including rubber, is a hot topic these days. What are your views on this phenomenon?

It is an important area of inquiry as far as rubber is concerned. In fact, I was one of the first persons to raise the issue in 2007 at Brussels at the meeting of the Advisory Panel of International Rubber Study Group (IRSG). I said that the IRSG should study the phenomenon and even suggested that they join hands with the Association of Natural Rubber Producing Countries (ANRPC) for the study. We, at the Rubber Board, did a study using the data of the last fifty years and found that warm nights are increasing steadily. This has had an impact. The productivity of rubber trees in India which stood at 1,903 kg per hectare per year in 2008 was down to 1,796 kg per hectare per year in 2009. Climate change is a significant factor for this fall in productivity though other factors also might have contributed.

What is the global demand for rubber?

The western markets will take more time to come back to their earlier growth path. But this has been counter-balanced by the growth of eastern markets, especially India and China. In this context, let me remind you that the IRSG had anticipated that India will become the second largest consumer of rubber by 2015-2020 which happened last year because of the fall in the consumption in the US market by around 34%. It is difficult to retain this position. But the slow recovery in western markets might give India more time at the second slot.

Is production increasing?

Rubber cultivation is spreading. This year, the supply-demand gap is only 85,000 tonnes. However, we started with an opening stock of 2.40 lakh tonnes.

Is the area expansion in the North-East going as per plans?

Yes. Our Fifth Plan target was to increase the area by 25,000 hectares in the North-East. So far, we have nearly 13,700 hectares under rubber plantation but this data is incomplete as it does not reflect the planted area for which subsidy has not been given. If we add that figure, the actual achievement would be close to target.
Rubber trees are seen as an answer against global warming. Your comment.

Yes. The green canopy of rubber is seen as an answer for global warming. But I am against the conversion of forest land for rubber cultivation. Only in the case of the North-East where jhum cultivation is practised, we do suggest rubber as an alternative. Also, I am against the conversion of land meant for food crops for rubber. To discourage this practice, we even deny planting subsidy in such cases where farmlands meant for food production are used for rubber cultivation.

The user industry has approached the Delhi High Court on the issue of rubber price. What are your views on this?

The government has set up a committee to study this as per the court order. As chairman of Rubber Board, I will be heading that committee and I still have to study the issues. But the amended Rubber Act clearly says that the question of fixing a minimum and maximum price for rubber is a matter to be decided by the government.

(economictimes.indiatimes.com)