Rubber market seen volatile on demand-supply imbalance

Rubber market seen volatile on demand-supply imbalance
Could be sensitive to seasonal, currency, weather factors.
Differentials between domestic and international rubber prices widened to over Rs 30 a kg in August.


Kochi, Aug 31

The prognosis of the International Rubber Study Group is that natural rubber production-consumption balance in 2010 would be a deficit of 30,000 tonnes followed by a surplus of 72,000 tonnes in 2011. The thin global production-consumption balance and low level of inventories is expected to lead to a highly volatile market. The global market is expected to remain highly sensitive to seasonal, currency and weather factors.

Muted offtake

This prediction for the global market has already become a reality in the Indian context. The Rubber Board estimates say that rubber production during the April-July 2010 was up 6.5 per cent over the corresponding period of the previous year. Partly as a result of non-tyre consumers keeping away from the market due to high prices, rubber consumption during the same period witnessed a relatively more muted growth at 3.3 per cent.

WIDENING DIFFERENTIALS

Despite the production-consumption growth working in favour of India, the differentials between domestic and international rubber prices widened to over Rs 30 a kg in August.

One reason for the higher price of rubber in the domestic market is reportedly the relatively low level of inventories with the consumers. The stock of natural rubber available with the manufacturers during April-June 2009 was 24 per cent against 42 per cent during the corresponding period of the previous year, sources in the Rubber Board said. Most consumers did not expect an early recovery in rubber consumption or prices and did not enter into the market aggressively.

ANOTHER VIEW

Consequently, Indian rubber prices were quoting lower than international prices in the ensuing months.

Rise in natural rubber prices can hardly be linked to the rubber inventories at the consumers end, Mr Rajiv Budhraja, Director–General of ATMA pointed out. On the contrary, low inventories could be a consequence of and not a cause of high rubber prices. The unprecedented rise in rubber prices forced the consuming interests to cut down on inventory costs and follow just-in-time approach to optimise efficiencies, he added. Also, the fall in percentage terms does not necessarily imply that there was an absolute fall in the inventories maintained by the consumers.

As the buyers were not very aggressive in the domestic market, the average domestic rubber prices in October and November last year ruled below international prices. But in December 2009, the average domestic rubber prices perked up were quoting Rs 3.83 a kg above global prices. Thereafter the monthly average rubber prices in the domestic market remained below international prices and by April 2010 were quoting Rs 9.36 kg lower than global prices, sources said. However, by the second week of June, domestic prices began to rule higher than international prices and by July the differentials had widened to Rs 24.87 a kg.

An aberration

The sources pointed out that the high prices of the last three months were an aberration and not the norm. The average annual price of rubber in the domestic market had been consistently lower than those in the international market from 2003-04 to 2008-09 with an average yearly difference of Rs 4.31 a kg during this period. This had already begun to change in 2009-10 when the average price in the domestic market slipped past the international prices. The strengthening of the domestic prices gained further momentum during the current year and divergence with global prices has widened beyond reasonable limits. But market sources were confident that the price surge has been contained and the price differential is expected to be contained in the months to come.


Spot rubber declines further
Aravindan

Kottayam, Aug 31

Domestic rubber prices weakened further on Tuesday. In the spot market, prices fell following the declines in the domestic and international rubber futures. The sentiments were further affected by the expectations on an improvement in local supplies due to favourable change in weather.

Sheet rubber surrendered to Rs 165 from Rs 167 a kg on buyer resistance. According to dealers, there has been no selling pressure in the main marketing centres and the volumes were dull. The Rubber Board's rate moved down to Rs 167 (170) a kg for RSS 4 in their official website.

Futures weak

In futures, the September series weakened to Rs 166.29 (168.17), October to Rs 163.16 (164.17), November to Rs 162.50 (163.56) and December to Rs 163.36 (164.31) a kg for RSS 4 on the National Multi Commodity Exchange. The volumes totalled 4,958 lots and turnover Rs 82.31 crore. The open interest in all series was 4,508 lots.

RSS 3 declined at its September futures to ¥310.4/Rs 172.80 (¥319.7) a kg during the day session and then to ¥309.6 (Rs 172.40) during the night session on the Tokyo Commodity Exchange. RSS 3 (spot) slipped to Rs 160.37 (160.96) a kg at Bangkok.

Spot rates were (Rs/kg): RSS-4: 165 (167); RSS-5: 161 (162.50); ungraded: 155 (156); ISNR 20: 149 (150) and latex 60 per cent: 113 (114).