Rubber prices are burning. Fuelled by rising auto sales, tyre demand has shot up, putting severe upward pressure on rubber prices. Tyre makers consume almost 60% of the total rubber produced in the country. Between April and May 2010, auto sales jumped by 28% as compared to the same period last year, while exports grew by a staggering 68%. Consequently, prices of RSS 4 grade rubber rose by 19.1% between Jan-Apr. At present, they are hovering at an all-time high of Rs 18,000 per metric tonne and could even top Rs 20,000 if demand doesn?t slow down.

This price rise is purely on account of a demand-supply mismatch, as production has risen in 2010, albeit slower than the demand. Rubber demand in 2010 is expected to rise by 12%, mainly because of scorching auto sales in emerging economies and huge imports by China. Meanwhile, global production is projected to rise by just 5.2%, down from a May growth estimate of 6.1%. The Association of Natural Rubber Producing Countries, a conglomeration of the major rubber producing countries, now feels that global natural rubber production would be around 9.384 million metric tonne in 2010. Of this, the bulk would be contributed by Thailand, Malaysia, China, India and Vietnam. These, incidentally, are also some of the biggest consumers of rubber.

It is projected that rubber prices will remain high, at least in the next few months, as there is limited scope for supplies to improve due to climate constraints, the unfavourable age structure of existing trees, acute labour shortage in plantations and the rising number of small holdings that limit the possibilities of enhancing yields using short-term measures. Output in Thailand, the world?s largest rubber producer, fell 13.3% YoY in April due to a longer-than-normal winter.

Although production in India, the world?s fourth largest rubber producer, is expected to rise by almost 8% in 2010-11 and demand is projected to grow by 6%, inflationary tendencies have not been curbed. This has prompted the rubber industry to raise doubts over output estimates made by the Rubber Board. Some are calling for a ban on futures trading. That would be a bad idea.

?sanjeeb.mukherjee@expressindia.com