High prices slow down rubber trade

September 15, 2008: Prices of natural rubber in the spot market stayed strong, slowing down trade activities to a great extent.

The RSS4 grade closed at Rs 141 per kg on September 10. Natural rubber prices scaled up by as much as 37 percent since April, reaching record levels of Rs 142 per kg in the last week of August.

The dull phase is also being attributed to the onset of the holidays, with the Onam festival just round the corner.

Tight market conditions are also a result of growers' reluctance to sell products just yet since they are anticipating a further increase in prices. In Kerala alone, close to 50,000 tons is lying with growers, which is yet to be processed.

Domestic tyre manufacturers are now focusing more and more on rubber imports for production, with domestic prices rising at an unwarranted rate. Most of these imports - currently priced at Rs 132 per kg - are likely to come in from Thailand.

It is a feasible proposition for tyre manufacturers since rubber constitutes almost 60 percent of the total cost of production. According to media reports, some 3,500 tons has already been contracted and would soon be arriving from Thailand. In addition to this, tyre manufacturers hold a license to import more than 10,000 tons of rubber.

Such a situation has arisen despite the fact that India's production grew almost 28.1 percent in the first five months of the current financial year. While production during these five months reached 3,12,565 tons, consumption rose 6.8 percent and touched the 3,71,460 tons mark.

Prevailing market conditions encouraged producers to tap more. Production of this additional volume, as is evident, has not helped soften prices. Instead, movement has only been upwards. This is because all that was tapped has not managed to find its way into the market.

The end of the festive season is likely to bring about some correction in prices. However, it might not be to a great extent because a large number of buyers who require the commodity and are not buying because of high prices, would then crowd the market, creating a supply crunch. Growers once again would show some reluctance.

However, the silver lining is that rubber is an agro product and has a limited shelf life. Therefore, the stand taken by tyre manufacturers should, in all probability, result in slightly relaxed prices.