Spot rubber gains on short covering


Kottayam, Sept 27

Rubber prices improved on Monday. Continues rains during the past couple of days have disrupted the tapping process in almost all the plantation areas. In spot, the market moved up on fresh buying and short covering following the positive mood on the National Multi Commodity Exchange. Sheet rubber increased to Rs 168 (166) a kg, according to trading circles.

The grade closed firm at Rs 167.5 (166) a kg according to rates quoted on Rubber Board's official Web site. RSS 4 improved at with October futures rising to Rs 172.37 (169.91), November to Rs 175.29 (171.93), December to Rs 177.5 (174.17) and January to Rs 179.4 (176.55) a kg on the NMCE. The turnover was Rs 83.68 crores.

Futures slip

The October futures for RSS 3 slipped to ¥298 (Rs 159.39) from ¥300 during the day session and then to ¥297 (Rs 158.86) a kg during the night session on Tokyo Commodity Exchange. RSS 3 (spot) closed weak at Rs 162.27 (162.9) a kg at Bangkok.

Spot rates were (Rs/kg): RSS-4: 168 (166); RSS-5: 164 (162.5); ungraded: 161 (160); ISNR 20: 161.5 (159.5) and latex 60 per cent: 115 (114.5).


Rubber futures get a silent invocation from tyre companies

AHMEDABAD (Commodity Online): As the tyre companies face one of the sever-most raw material shortages over past several years, the industry has remained apprehensive of adopting the cost management mechanism under the price hedging of the key raw materials for the industry, i.e. natural rubber. However, some tyre makers are apparently found practicing hedging via futures trades, but silently.

Key tyre companies worldwide have expressed their reluctance to participating into futures trade in the plant crop, rubber. However, not many have the strong reason to stay averse.

World’s largest tyre maker by sales, Bridgestone Corp has recently revised its end product prices upwards, more than one-time in the year so as to match the rising costs. America’s another large tyre maker; Goodyear Tire & Rubber Co too has resorted to price hike of its products, sighting the reason of rise in raw material costs.

Apparently, the situation in real sense has been dampening for the rubber consuming industries as the plant crop is in severe shortage across the world. And constantly rising demand is jacking up the prices.

However, in a recent study, the International Rubber Study Group (IRSG) has revised its forecast for global rubber consumption downward due to uncertainties in the world economy such as the euro-zone debt crisis.

The estimation for the natural rubber consumption in 2010 was reduced to 10.2 million tonnes, from 10.4 million tonnes projected earlier this year. However, the new forecast is still higher by 8.6% than the last year's actual consumption.

The rising demand has called for revision of end-products by the manufacturers. Not many from the rubber consuming industries have been seen participating in the rubber futures so as to hedge against the inflation in the commodity.

A senior officer from Goodyear has expressed the company’s unwillingness to do raw-material hedging. However, he has remained silent about the hedging on the exchanges, but the industry players have remained in a denial mode to take active part in futures trade in rubber.

A senior officer of diversified tyre maker, informed Commodity Online on condition of anonymity that some of the companies do hedge in rubber to take advantage of the futures markets, but remain silent about their participation as they are the ones who also demand a ban on futures trading, when the prices start burning.

“Some of the tyre companies do trade in futures markets to hedge their raw material costs. The futures markets do offer an opportunity to manage your costs. But not many companies are into it; hence those who are the participants on rubber futures can not reveal their identity as it would create a distrust among other stakeholders of the same group,” the officer who looks after the purchases told Commodityonline.

However, industry experts are of the opinion that this type of participation of the tyre makers would harm not only the interest of the other tyre makers but also the consumers of those tyre companies as they would be charged higher in the name of the high raw material costs, while the company would silently be hedging their costs.

Silent participation from the tyre makers seems to be giving them higher margin from the goods sold by their other peers. Experts call it an unfair competition on the part of the select tyre companies.

Elaborating more on the issue, Anil Mishra, MD and CEO, National Multi Commodity Exchange (NMCE) maintained that most of the tyre companies held wrong feeling about the futures trades in rubber and hence remained at bay from participating.

“I can't comment on the risk management style of any particular company but in my interaction with tyre companies I have found that they have wrong feeling that they would add to the price rise in the futures price if they fully participate in the futures market whereas the truth is that their suppliers participate in the futures market and thus they, rather than tyre companies, are able to influence the futures price as well as physical price,” explained Mishra adding that their position or buying secrecy was not maintained and market got to know it and there is multiplier effect because same order moves in the market through many suppliers and thus fuels the price. Sighting his personal experience at his previous engagement as a Senior Trader for a Multi National Company (MNC), Mishra said, “From my personal experience, we were able to manage the risk; when we were able to buy in physical form, when market was rallying; and able to buy futures when market was crashing, thus we were able to buy cheaper over all,” he added.

The additional benefit, according to Mishra, would be that it could demand top quality because there would be very few buyers, when there are plenty of suppliers.

The tyre makers are also found to have wrong perception that they can't get enough delivery from the exchanges, but the exchanges are mainly treated as a place to manage the prices.

“They (rubber consumers) should be aware that exchange is for price risk management and not for delivery. Threat of delivery keeps futures price aligned with physical price. When there is no buyer, exchange becomes the buyer where physical sellers could give delivery. Giving delivery and taking delivery from the exchange has additional cost, therefore prudent buyers use exchange for hedging their price risk and take delivery from the exchange,” he maintained.

However, on the silent participation from the tyre makers, Mishra accepted that “some tyre companies have understood this and we see their increased participation now.” But he reasoned their muted activeness saying, “Nobody likes to share the secret of his success and risk management technique. They have right to match price with the market and increase its profitability or they may increase the market share if they don't increase the price. It is the individual decision of the company,” Mishra added.

According to him, “Futures market would always be defamed because one group would benefit and other group would lose because exchange has a zero sum effect. The losing group would defame and gaining group would remain silent. With increased knowledge all stakeholders would understand the truth.”

The rubber consumer industry had cried foul to the government demanding a suspension of futures trading in rubber, accusing it to be a factor escalating prices.

The industry experts opined that the growth in auto sales would further increase the demand for tyres and resultantly rubber. But looking at the sluggish pace of the global economic recovery the shortage of rubber is believed to ease somewhat with demand contracting owing to falling economic activities.

In the coming quarter, the overall supply of rubber will be relatively better with arrival of new production. Experts anticipate a stable position given the demand being more-or-less constant.



Heavier rainfall hits China’s rubber imports

MUMBAI (Commodity Online): General Administration of Customs reported that China’s natural rubber imports have been hit by heavier rainfall accompanying the La Nina weather event in the last few weeks.

Rubber tapping in major producing countries especially in Southeast Asia is also disrupted due to La Nina weather phenomenon. The Association of Natural Rubber Producing Countries reported that Thai rubber output in July fell 23% on year following extended wintering and early rains. Thai rubber exports are estimated to be around 2.7 million metric tons this year, little changed from last year's level.

Indonesian production fell 10.4% on year in June and in Malaysia, production fell 2.2% in July to 81,083 tons, data from the Department of Statistics.

Kuala Lumpur based Association of Natural Rubber Producing Countries said that growth in natural rubber demand in three major consuming nations China, India and Malaysia has slowed down progressively from the first quarter to the third quarter this year.

Based on data available up to August, it said on a year-on-year basis, demand growth in China slowed down drastically to an estimated 4.4% in the third quarter from 18.7% in the second quarter and 28.2% in Jan-Mar.