Rubber bounces back

Prices have recovered from a low on signs of growing demand from user industries



After cooling off for more than a year, natural rubber prices are showing some signs of life. Prices at the Kottayam and Kochi markets in Kerala, the largest rubber producing State in the country, have firmed up to ₹125-135 a kg since January this year, after being on a downward trajectory since mid-2013.

From about ₹185 a kg in August 2013, prices touched rock bottom at around ₹115-120 towards the end of 2014.

What moved prices

The increase in demand for rubber over the last few months could be a key reason for the upmove in prices. Data from the Rubber Board shows that natural rubber consumption in India grew a mere 0.9 per cent to 9,81,520 tonnes during 2013-14 from 9,72,705 tonnes in the previous year. Low demand thus helped keep prices suppressed.

But into fiscal 2014- 15, the need for rubber from user industries has increased, with demand for their end products showing signs of improvement.

Considering that about 65 per cent of the consumption of natural rubber is by the auto industry for the manufacture of tyres, the improvement in vehicle sales over the last few months stands testimony to this.

Picking up steam in the second half of the fiscal, overall vehicle sales in 2014-15 grew 7 per cent in 2014-15, compared with 3.5 per cent in 2013-14.

Commercial vehicle sales recovered the best from the downturn, turning around from a 25 per cent fall in volumes in 2013-14 to a growth of 16 per cent in the just concluded fiscal.

Besides, since rubber is also used in several other industries such as aeronautics, electrical and electronics, materials handling, healthcare and power transmission, green shoots in growth in some of these sectors after the slowdown of the previous years could have moved up demand as well. The increase in demand is vindicated by Rubber Board statistics too. As against flat growth in the earlier year, for April-December 2014 (latest available data), consumption of natural rubber grew 4.6 per cent to 7,64,685 tonnes compared to the same period previous year.

Low production could also be another reason for improving prices. Even as consumption moved up 4.6 per cent, domestic production of natural rubber fell 12 per cent to 5,10,000 tonnes over the first nine months of fiscal 2015. Low prices over the last one-two years discouraged tapping by domestic rubber growers, bringing down production.

A firming up of international prices in 2015 might have been a third reason for the rise in prices back home.

After touching a multi-year low of around ₹100 in end-2014, international prices at Bangkok have moved up to around ₹115 in recent months, with the Thai Government taking active measures to shore up prices and support farmers. Thailand is among the world’s largest producers and exporters of natural rubber.

Nevertheless, with international prices continuing to be lower than domestic prices even now (see chart), higher imports have also hurt domestic production to an extent. Imports during April-December 2014 grew 14.5 per cent to about 3,30,000 tonnes over the first nine months of 2013.

Outlook

Although prices have moved up a bit, the gains both in domestic and international prices may not be sharp in 2015.

From about 11.9 million tonnes in 2014, the International Rubber Study group expects world demand for natural rubber to move up 3.1 per cent in 2015.

This growth will be aided by improving demand in India and the recent deal between China and Thailand to buy the latter’s rice and rubber.

At the same time, the study group expects supply to be adequate to meet demand, keeping prices in check. The Rubber Economist also expects global production to outstrip demand in 2015 by 43,000 tonnes.

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