RBI rate hike may impact rubber prices, say traders

RBI rate hike may impact rubber prices, say traders
July 27, 2011





KOCHI The Reserve Bank of India’s (RBI) decision to hike interest rates on its short term lending (repo) and borrowing (reverse repo) rates by 50 basis points may bring down prices of natural rubber in Kerala, according to traders.

Kerala accounts for 90 per cent of the natural rubber production in the country and the rubber cultivators in the state, who are already nursing fears of an imminent price fall owing to the government decision, may suffer further damage, traders said.

The RBI raised its lending and borrowing rates to 8 per cent and 7 per cent respectively to fight inflation.

The interest rates on automobile loans is expected move up in tune with the RBI rates hike, which may result in weakening of vehicles demand, said N Radhakrishan, advisor, Cochin Rubber Merchants’ Association.

The sluggish growth in auto sales will impact tyre industry, which accounts for 65 per cent of natural rubber demand in the country, he added.

The benchmark RSS-4 variety in spot markets of Kochi and Kottayam was at Rs210 per kg on Tuesday compared with Rs214 last Tuesday.

The peak season for rubber production, expected to begin from August 15, may also keep the overall sentiment subdued for the industry, traders said.

Tyre makers will wait for rise in supply with production hitting peak levels, they added.

A section of dealers, however, said the prices may not see any decline immediately as producers would have to hold back stocks to limit any sharp fall.

The overall trend in key Asian markets like Tokyo Commodity Exchange and Bangkok may also impact sentiments in Kerala, they said.





Import of natural rubber only option in near term
July 26, 2011





The raw material component of tyre industry estimated to be around R30,000 crore accounts for 70% of total cost of production. The industry has been pleading for increasing the availability of natural rubber, the key raw material, in the country to meet the rising demand and has recently contemplating acquiring rubber plantations abroad. Neeraj Kanwar Chairman, Automotive Tyre Manufacturers Association (ATMA) spoke to FE’s Sandip Das on various issues impacting the industry.

Why is the tyre industry looking for rubber plantations abroad when India is amongst the leading rubber producers in the world?

About three years ago, natural rubber production and consumption were matching. India has been the fourth largest producer and consumer of natural rubber in the world. Over the last three years, however, the consumption has grown at a much faster pace than production.

While India continues to be the fourth largest producer of rubber, it ranks second in consumption just after China. Growth in automobile sector and better road infrastructure has led to an exponential rise in demand for tyres which in turn has heightened the need for natural rubber by the industry.

However, the domestic demand-supply gap in natural rubber is widening. As a long-term measure, therefore, the industry is looking for acquiring rubber plantations abroad to secure future raw material needs like China.

While the plantations are a long term measure, what are the short term options for the industry?

The industry has been importing natural rubber to bridge the deficit between production and consumption as a short-term measure. While imports are inevitable, they represent an expensive option. A hefty 20% duty was imposed on import of natural rubber.

From 1st April, the Government has put a cap of R20 per kg of import which is a relief but domestic production being inadequate, we have asked for duty free import of rubber to the extent of domestic deficit which in the current year is likely to be in the range of 2 lakh tonne.

What are the implications if natural rubber import issue is not addressed urgently?

We consider rubber growers as a vital link in the value chain. But the current business realities call for a relook at the production and consumption imperatives.

In the last four years, natural rubber production has increased by only 1%.

On the other hand, its consumption has increased by around 16% leading to a wide gap. While plantations abroad will help bridge the gap as a long term measure, import is the only option in the near term.

However, costly imports will make the industry uncompetitive and the import of finished products especially tyres will take place denying value addition within the country.

Duty free import to the extent of domestic deficit should be seen in this backdrop.

The imports should not be seen as a dampener for domestic prices since it has been seen that in the years when maximum imports have happened, the domestic prices have also ruled higher.

People say that harping on raw material issue is only a ploy to increase prices. What are your views on this?

If you look at the average price of natural rubber in 2009-10 and 2010-11, there has been an increase of more than 100%. The prices of synthetic rubbers like PBR and SBR also have gone up in similar proportions.

In fact, in view of competition, the industry has not been able to pass on the increased cost of production to the consumers leading to a tight squeeze on profitability.

The ratio of net profit to net sales for the industry which was around 8% in 2009-10 has dwindled to less than 3% in 2010-11.

If the partial increase in cost of raw materials is not passed on to the consumers, the industry will be in losses.

Industry has already lined up investment programme of R15000 crore over the next 3-4 years to serve the rising demand from a growing economy.





Tokyo futures at 3-month high, may rise further (July 27)
July 27, 2011





BANGKOK, July 27 (Reuters) – Tokyo rubber futures rose 2.3 percent to a three-month high on Wednesday as concern about the U.S. debt stalemate encouraged investors and funds to take speculative buying in commodity futures, dealers said.

The benchmark rubber contract on the Tokyo Commodity Exchange (TOCOM) <0#JRU:> for January 2012 delivery rose 8.4 yen to settle at 396.0 yen ($5.1) per kg. It rose 2.3 percent to a high of 396.0 yen, the highest since April 27.

Dealers said TOCOM was expected to rise further on Thursday to test resistance at 400 yen.

However, the most active rubber contract on the Shanghai futures exchange for January delivery dropped 60 yuan to finish at 36,280 yuan ($5,632) per tonne.

“Rubber rose in line with other commodities. There was speculative buying in both grains and metal futures. Investment funds also continued to buy rubber as well,” said a Japanese dealer.

Commodities rose broadly on Tuesday, with copper and corn outperforming the pack, as fear of a U.S. credit default sank the dollar and investors sought assets that could preserve value.

Oil slipped on Wednesday, staying at $99.13 a barrel by 0713 GMT as worries about U.S. debt dominated the markets.

The dollar fell to a fresh record low versus the Swiss franc, with the U.S. currency under broad pressure on worries over the prospect of a U.S. debt default, pushing investors towards the perceived safe haven of the franc.

($1 = 78.070 Japanese Yen)

($1 = 6.441 Chinese Yuan)




Sheet rubber saps on buyer resistance


KOTTAYAM, JULY 27:
Physical rubber prices continued to remain subdued on Wednesday.

While prices were already under pressure from increasing domestic production, higher stocks and imports, the hike in short-term interest rates by 50 basis points raised further concerns over the demand for the commodity as it will also affect automobile sales.

NO SELLING PRESSURE

There was no panic selling in the market and prices slipped mainly on buyer resistance.

Sheet rubber dropped to Rs. 209 (209.50) a kg, as reported by the traders. The grade moved down to Rs 209.50 (210) a kg both at Kottayam and Kochi, according to the Rubber Board.

FUTURES WEAKEN

RSS 4 weakened with the August series falling to Rs 207.36 (209.15), September to Rs 206.65 (208.78), October to Rs 206.50 (208.30), November to Rs 207.01 (208.50), December to Rs 208.40 (209.00) and January to Rs 209.99 (210.10) a kg for RSS 4 on the National Multi Commodity Exchange.

RSS 3 (spot) improved to Rs 217.82 (214.96) a kg at Bangkok. The August futures increased to ¥386.8 (Rs. 219) from ¥ 380.5 a kg during the day session but then slipped to ¥ 386.4 (Rs. 218.78) in the night session on the Tokyo Commodity Exchange.

Spot rubber rates (Rs/kg) were: RSS-4: 209 (209.50); RSS-5: 206 (207); Ungraded: 200 (202); ISNR 20: 208 (208); and Latex 60%: 136.50 (137).