Domestic natural rubber prices have been on a weak wicket for quite some time now. After the elevated levels of ₹200-240 a kg seen in 2011, average monthly prices stabilised to around ₹160-180 a kg over the next one to two years. But the fall has been sharp since then. From about ₹186 a kg in July-August 2013, average monthly prices halved, touching rock bottom in February 2016, at ₹94 a kg. They have bounced back a bit in March and April this year, but sharp increases are not expected.

Why prices cooled A slowdown in demand from China, which is one of the biggest consumers of rubber, oversupply in the global markets, worries over substitution of natural rubber with synthetic rubber due to the fall in crude prices and depreciation in currencies of major natural rubber exporting countries sent international rubber prices spiralling down in the last one to two years.

While some of these factors did influence domestic prices to an extent, lower demand at home, too, has been one of the reasons for the softening of domestic prices.

Data from the Rubber Board shows that natural rubber consumption in India grew by a mere 0.9 per cent to 9,81,520 tonnes during 2013-14 over 2012-13. Fiscal 2015 did show some promise, with consumption rising by 4 per cent to 10,20,910 tonnes over 2013-14. But that did not hold on, with consumption slipping again in fiscal 2015-16. Latest data available until January 2016 shows a 3.1 per cent fall in consumption in the first 10 months of the fiscal compared with the same period the previous year.

Considering that about 65 per cent of the consumption is by the auto industry for the manufacture of tyres, this trend corresponds to the trends in automobile sales seen in these periods. Overall vehicle sales grew by a muted 3.5 per cent in 2013-14, but picked up to grow by 7.2 per cent in 2014-15. But vehicle sales stepped back again in 2015-16, ending the year with only a 3.8 per cent growth. Secondly, part of the need for rubber was met from imports, denting demand further for domestic produce in this period.

According to data available from the Directorate General of Commercial Intelligence & Statistics, the country imported 4,42,130 tonnes of natural rubber during 2014-15, compared to 3,60,263 tonnes in the year before — a 23 per cent growth. The April-January 2016 period (latest available data) also shows a spike in imports vis-à-vis the corresponding months of the year before. This is because international prices, represented by the prices prevailing in Bangkok, stood lower than domestic prices, making imports a cheaper alternative. The difference between average monthly prices in the domestic and international markets has been anywhere between ₹7 per kg and ₹30 per kg since mid-2013. Hence, production slippages due to unviable prices notwithstanding, lacklustre demand from user industries and lower international prices have kept domestic natural rubber prices down.

Outlook On the domestic side, higher rural incomes from good monsoons and lower interest rates are expected to aid a pick-up in auto sales and thereby boost demand for rubber a bit. But internationally, China once again expects a plunge in demand for natural rubber in 2016. According to the Rubber Economist, global rubber production is set to exceed demand by 4,11,000 tonnes in 2016 and by 4,30,000 tonnes in 2017, compared with a surplus of 98,000 tonnes in 2015.

The International Rubber Study Group expects world natural rubber demand to increase by 2 per cent to 12.6 million tonnes in 2016 and by a further 3.4 per cent in 2017. But again, the outlook for natural rubber supply in these periods is sufficient to meet demand, according to the Study Group.

Hence, any sharp spike in natural rubber prices is unlikely in the near to medium term. It can at best be expected to be range-bound, if not drop further.

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