1. Natural rubber prices may soften in domestic and global markets

Natural rubber prices may soften in domestic and global markets

It has been a roller-coaster ride for natural rubber so far this year. The year began on a negative note with the commodity plunging to its weakest levels in about six years in February on oversupply worries.

By: | Updated: August 30, 2016 4:25 PM
rubber, rubber production, rubber prices It has been a roller-coaster ride for natural rubber so far this year. The year began on a negative note with the commodity plunging to its weakest levels in about six years in February on oversupply worries. (Reuters)

It has been a roller-coaster ride for natural rubber so far this year. The year began on a negative note with the commodity plunging to its weakest levels in about six years in February on oversupply worries. However, with key natural rubber producing countries entering a lean production phase, the commodity witnessed a bounce. The rise in crude oil prices, attempts by top natural rubber producing countries to prop up prices, forecasts of unfavorable weather along with a surge in rubber imports by China lifted sentiments, pushing up prices to near one-year highs in April. However, a drop was again witnessed in May with prices retracting and entering into a consolidation mode by July. With the market on the brink of entering the peak production phase, a southward move is being seen in natural rubber prices on both domestic as well as international front.

Off-late, the Indian natural rubber market has been witnessing a retreat. Spot market prices of RSS4 grade rubber tumbled from three-month highs to hit their weakest level in more than two months. Since mid-July, RSS4 was quoting rather firm around Rs 144/kg, its highest level since April this year. Broad-based decline in Indian natural rubber production, thinning supplies to the market, unfavorable weather amid some improvement in demand had resulted in some firm moves in rubber prices. However, a subsequent decline in momentum has been witnessed and prices have now declined to Rs.130/kg in the major Kottayam market.

A decline in natural rubber prices in the major overseas market, progress in tapping activities, favorable weather and reports of higher imports are all dampening the sentiments in the rubber market, which is soon entering the main production season, starting September-October. Tapping activities have started to pick up in the major natural rubber growing areas in Kerala with the weather turning conducive and the latest data from the Rubber Board indicating a rise in production. The Board’s data showed a 6.4 per cent rise in production in June to 50000 tonnes on a year on year basis in India and a 2.3 per cent rise in production, estimated in Q1 of this fiscal. In the meantime, consumption rose 7.4 per cent to 870000 tonnes during the same period. Even as domestic natural rubber production falls short to meet consumer demands, improvement in domestic production along with expectations of global supply surplus and lower natural rubber prices in the international market could continue to exert downward pressure on prices in the Indian market. Still, weather could play a decisive role in determining prices. Occurrence of La Nina and its impact on production in the major natural rubber growing regions could have considerable effect on prices.

(The author is research analyst at Geofin Comtrade)

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