Inclement weather, burgeoning demand push up natural rubber prices
Sharad Matade 11 November 2010

A number of major rubber-producing nations have witnessed extensive damage to their plantations due to heavy rainfall, which has caused a demand-supply shortage 

Prices of natural rubber which have seen an upward movement in recent weeks due to lower supply and higher demand, may remain flat after December, say experts. On Monday, natural rubber touched an all-time high of Rs202 per kg in the Indian market.
"Rubber prices are rising as there are supply constraints. Heavy rains in the southern region have affected rubber collection. As there is no respite from these rains, rubber prices may go up by another Rs2 to Rs3 (per kg). However, the weather should improve after December; rubber production will be back on track," said Ibrahim Jalal, treasurer, Indian Rubber Dealers Federation, an all-India rubber dealers' association.

Heavy rain in major natural rubber producing countries (Thailand, Indonesia, Malaysia and Vietnam) has damaged rubber plantations, leading to a supply shortage amid strong demand from consumer-tyre manufacturers in these countries. The growing demand for rubber is fuelling prices almost on a daily basis.

"Prices are increasing in the domestic and international markets. It's difficult to predict tomorrow's prices. There has been unexpected rain in November and it is disturbing the tapping process. Even whatever rubber that has been tapped is not coming into the market," Biney Kurian, deputy director, marketing, Indian Rubber Board, told Moneylife.

"We are expecting a little correction once the weather improves. Many manufactures are running out of stock, so their first objective will be to fill up their inventories," said Mr Kurian.

A CRISIL Research spokesperson told Moneylife, "Global prices of natural rubber have been ruling high in the current year due to supply issues arising from natural calamities in Malaysia and Thailand, two major rubber-producing countries. Domestic prices between April-October were higher than the previous year by 70 %. While we do not expect any further increase in rubber prices for the rest of the year, average prices for FY11 will be higher by 55%-60%."

According to Thailand's Department of Disaster Prevention and Mitigation, about 1.9 million acres of agricultural land, or 4.8% of total arable land, was damaged by floods that spread across 51 provinces in that country.
"Bad weather in these countries has affected rubber production and it would prop prices at the international level as well," Mr Jalal said.
According to data published by the Indian Rubber Board, last month, the price of Ribbed Smoked Sheet four grade (RSS-4) grew by Rs1,467 to Rs18,112 per 100kg (quintal), while RSS-3 surged by Rs1,337 to Rs18,506 per quintal.

The rally continued in the first week of this month as RSS-4 prices went up further by Rs647 to Rs19,580 per quintal. Prices of RSS-4 on the Bangkok Commodity Exchange increased by Rs 405 to 19,504/100 kg for the first week ending 6th November.
In India, rubber production dropped 7.6% to 82,000 tonnes last month compared with 88,775 tonnes in the same month of last year. However, the consumption stood at 81,500 tonnes in October against 77,650 tonnes in the same month of last year.

The drop in production was due to heavy rain in Kerala, according to Mr Jalal.
Natural rubber imports in India surged by 81.2% to 18,148 tonnes in October on increased demand from tyre manufacturers and slowdown in production. Surge in prices of rubber has reflected in prices of tyres. Since April, prices of tyres have increased by 10%.
"Tyre producers have not increased prices of their products since the last two months, but raw material prices are very volatile and it's difficult for them to fix prices. In the future, if prices show the (same) uptrend, then tyre companies would think of hiking prices of products," a senior official from the Automotive Tyre Manufacturers' Association (ATMA), who preferred anonymity, told Moneylife.
According to ATMA, during September, tyre production increased 26% to 1 crore units from 79.8 lakh units, the same month a year ago. The average monthly production for the first six months of this year grew by 28% to 95.3 lakh units compared with 74.4 lakh units during the same period last year.

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