Demystifying a commodity - Rubber

Demystifying a commodity — Rubber

Rubber is an elastic solid substance extracted from the latex of various tropical trees which is then refined and sold to manufacturers. India is the world’s third largest producer. Thailand and Indonesia are ahead. In India, natural rubber is exported under the brand ‘Indian National Rubber’ and is promoted by the Rubber Board of India. India is also the fourth largest consumer of rubber in the world.

Where does it grow?

In India, rubber cultivation is confined to two States — Kerala and Tamil Nadu (the two together contribute 90 per cent of domestic production). Rubber requires 250-300 cm of rainfall throughout the year. There should not be any dry spell or strong winds. Six hours of sunlight is needed every day.

Rubber futures

The rubber futures contract is traded only on the National Multi-Commodity Exchange of India Ltd (NMCE)

On NMCE, rubber futures are traded between 10 am and 5 pm, Monday to Friday. One lot is one MT (metric tonne) and the price is quoted per 100 kg.

An initial margin amount is required to take position in futures contract. Presently, the near month (May) contract attracts margin of about 10.5 per cent. You also need to pay for brokerage and service tax. Rubber futures is exempt from commodities transaction tax (CTT).

The peak production period for rubber begins end of September and goes till end of January during which time volumes surge in the futures market to a daily average of ₹90-100 crore. Participants such as importers, exporters and tyre companies are the key players in rubber futures in India. Development of automobile industry, international prices, seasonal changes and availability of synthetic rubber influence prices in the futures market for rubber.

Rubber farmers sell their produce either to the dealers directly or to the co-operative society, both registered under the Rubber Board of India. Traders should fulfil the quality specifications as mentioned by the exchange in the case of physical delivery. The basis centre for physical delivery of rubber is at Kochi or Ernakulam and at other centres such as Kottayam, Calicut, Malapuram and Trichur. The Rubber Board monitors and promotes the rubber industry in India. The spot prices for rubber are displayed at the Rubber Board.

With inputs from Anu Pai, Analyst, Geofin Comtrade

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