Rubber Supply Tightness Lasting Until 2018 May Raise Costs for Tiremakers

Rubber Supply Tightness Lasting Until 2018 May Raise Costs for Tiremakers
July 20, 2011





Global supply of natural rubber will remain “tight” at least during the next seven years as output gains among key growers fail to match rising demand from tire and glove makers, according to a producers’ group.

“Tightness in supply will continue until 2018 as production growth is marginal or moderate,” Jom Jacob, a senior economist at the Kuala Lumpur-based Association of Natural Rubber Producing Countries, said in an interview in Bangkok yesterday. The member countries of the group, also called ANRPC, represent 92 percent of global supply.

Limited supplies may help boost a 47 percent rally in rubber futures in Tokyo in the past year, potentially increasing costs for companies such as Bridgestone Corp. (5108), Michelin & Cie. and Goodyear Tire & Rubber Co. (GT), the top three tire makers. Prices may remain “strong” until next year as persistent rains limit gains in output, Pongsak Kerdvongbundit, president of Thai Rubber Association, said yesterday.

A large number of producing rubber trees, which were planted during 1980s, will have to be uprooted between 2012 and 2018, reducing total area of plantations worldwide, Jacob said. Farmers delayed cutting down trees to take advantages of high prices, he added.

Rubber advanced to a record 535.7 yen a kilogram ($6,768 a metric ton) on Feb. 18 as global demand led by China outstripped supply and after rain and flooding curbed output in Thailand and Indonesia, the two largest exporters.

December-delivery contract today gained as much as 3.2 percent to 390.9 yen a kilogram on the Tokyo Commodity Exchange.

Aged Trees

Output from ANRPC member countries may climb to as much as 10.3 million tons next year from 9.9 million tons this year, data from the group show. Production may expand further to 12.2 million tons in 2015 and 13.4 million tons in 2018, it said.

Thailand and Vietnam will have a greater expansion rate, while the growth in Indonesia and Malaysia will probably be stagnant, Jacob said. Some farmers may retain aged trees to gain from high prices, he said.

Rubber production growth in 2015 may increase between 5.8 percent and 6.6 percent, compared with 2 percent to 6 percent in normal years as trees planted in 2008 will be ready for tapping, Jacob said.

The natural rubber shortage may widen to 1 million tons by 2020 as demand from tire makers boosts consumption to about 15.4 million tons, Stephen Evans, secretary general of the International Rubber Study Group said on June 8. Demand this year may gain 4.7 percent to 11.2 million tons, he said.

Chinese Demand

China, the world’s largest consumer, may use 3.5 million tons of natural rubber this year, a 6.1 percent increase from a year earlier, according to ANRPC. Vehicle sales in the Asian nation, the world’s largest automobile market, may grow about 5 percent this year, Zhu Yiping, head of the China Association of Automobile Manufacturers’ statistics department, said on July 8.

Supply deficit in India, the second largest buyer, will widen as increasing car sales boost demand for tires, Vinod Simon, president of All India Rubber Industries Association, said in an interview yesterday. The shortfall may widen to 840,000 tons in 2020 from 175,000 tons this year, he added.

Bridgestone Corp. and its Indian rivals including Apollo Tyres Ltd. (APTY) and MRF Ltd. (MRF) are investing $3 billion in plants to meet rising demand for tires, according to the Automotive Tyre Manufacturers’ Association. Car sales in the world’s second-most populous nation may more than double to 3 million by 2015, according to the government.




Natural rubber output up 5.4% in April-June
July 20, 2011





Natural rubber (NR) production rose 5.4 per cent during April-June, while the slowdown in the growth of consumption continued. Consumption grew 3.9 per cent in the first quarter of the current financial year, according to the provisional figures of the Rubber Board.

The total production in the period was 175,700 tonnes, as against 166,750 tonnes in the corresponding period of the last financial year. Consumption increased to 242,000 tonnes as against 232,850 tonnes.

The export of rubber almost doubled during the period at 8,189 tonnes against 4,323 tonnes in April-June 2010-11. A marginal rise was recorded in imports, as 41,929 tonnes were brought in as against 38,233 tonnes. The Board’s data also estimates a total stock of 247,442 tonnes at the end of the first quarter of 2011-12, while this was 180,697 tonnes in June 2010.

The production of NR in June increased 4.1 per cent to 59,200 tonnes compared to 56,850 tonnes during June 2010. Consumption in June increased marginally (0.6 per cent) to 80,500 tonnes compared to 80,000 tonnes during the same month last year, the Board data showed.

Bloomberg adds: NR prices may remain “strong” until next year, as persistent rain in key producing nations limit gains in output, while demand remains robust for the commodity used in tyres, the Thai Rubber Association said. Rubber futures on the Tokyo Commodity Exchange have expanded 44 per cent this year, helped by rising demand from China, the largest user. The Asian nation, the world’s largest automobile market, will consume 3.5 million tonnes of rubber this year.




NMCE Rubber dips on import duty concerns
July 20, 2011





MUMBAI (Commodity Online): The NMCE Rubber futures plunged on the reports of center allowing concessional duty rubber imports.

The Centre has allowed imports of 40,000 tonnes of natural rubber at a concessional duty of 7.5 per cent for the current fiscal. This is similar to the one allowed last fiscal. Since April 1 this year, the Customs duty on natural rubber has been fixed at 20 per cent or Rs 20 a kg, whichever is lower.

The move to allow imports at a lower duty follows demand from the user industry, particularly tyre manufacturers, to allow import of two lakh tonnes duty-free. Sources said that the Commerce Ministry had recommended allowing imports of one lakh tonnes duty-free.

But the Finance Ministry, which has a final say, has treaded a cautious path in arriving at the final decision. Growers, on the other hand, are totally opposed to imports. The TOCOM Rubber futures are trading with negative cues.

The NMCE Rubber August contract is currently trading at Rs.21500 per quintal, slight higher by 0.64 per cent against the previous close. In the earlier sessions the contract traded at a range of Rs.21251-21524. Volume traded is 1363 lots so far.




Rubber prices not expected to fall despite imports at lower duty




Rubber sheets being dried in open space (file photo): S. Rambabu
The increased arrivals from next month are also not expected to depress prices to any degree since it is going to be dictated by global price trends.

KOCHI, JULY 20:
The announcement that 40,000 tonnes of natural rubber can be imported at the concessional duty of 7.5 per cent has created a flutter in the market and apprehension in the minds of rubber farmers. What has created greater consternation in the minds of the farming community has been the speed with which the announcement was made.

The announcement came in the backdrop of a short spell of just two weeks when global rubber prices edged lower than domestic prices.

However, Mr R Sanjith, Head of Commodity, United Planters Association of Southern India (UPASI), said that for six months domestic prices were consistently lower than international prices. Between January and mid-July, the average global rubber rice ruled at Rs 244 a kg, Rs 20 higher than the domestic price of Rs 224.

RUBBER BOARD ESTIMATE

The Rubber Board has estimated that domestic rubber production will increase by 4.8 per cent in 2011-12 to 9.02 lakh tonnes while consumption is poised to grow by 3 per cent to 9.77 lakh tonnes. Going by the early trends for the first three months of the current fiscal, the targets are realistic, sources in the Board said.

The potential demand-supply shortfall of 75,000 tonnes can easily be met from the stocks available in the country, they said. The stock available at the end of June was 2.47 lakh tonnes, enough to last over three months. While the industry has been consistently questioning existence of the stock, sources in the trade stated that the difference if any would not be so huge as to create a shortfall in 2011-12.

Given the dynamics of the markets and the global demand-supply position, Indian prices are not expected to fall much.

Rubber Board sources said the first consignment of imports undertaken after the announcement was made, would hit the domestic market only 2-3 months down the line. There is regime of regulatory procedures which have to be complied including regulatory approvals from the Directorate-General of Foreign Trade.

Mr George Valy, President of the Indian Rubber Dealers Federation, said that of the 40,000 tonnes of natural which were permitted to be imported last year, just around 10 per cent would have been imported. Neither did the announcement, nor the actual imports threaten the price line then, he said.

SHORT-TERM BLIP

However, he did not rule out the possibility of a short-term blip in prices in the wake of the latest announcement. But even this trend has not been testified to by the developments of the last couple of days when rubber prices did not evince much erosion.

The price spurt in July was mainly due to low arrivals in the markets on account of incessant rains. This was also the season of high imports. But all that is poised to change from August when domestic production in poised for their annual cyclical upsurge. But the increased arrivals from next month are also not expected to depress prices to any degree since it is going to be dictated by global price trends.

In the worst case scenario, India can always resort to the export market if and when the domestic prices fall Rs 10 below the international prices, Mr Valy said.