Dealers seek govt intervention as rubber price plunges

Written by M Sarita Varma | Thiruvananthapuram | Updated: Oct 5 2013, 08:30am hrs
Regardless of rubber dealers shutter-down token protest, the raw materials price slid further this week to R165 per kg. Last week, 8,500 rubber dealers were on strike against the price of the benchmark RSS-4 grade falling to R172 per kg, resulting in a price crash of R14 per kg in just one fortnight.

For over two weeks, major tyre companies and other industrial consumers have been staying away from local rubber bourses, managing with JIT (just-in-time) inventory. In August alone, NR imports had surged by more than 100%, with international prices R15 per kg less than domestic prices in April-August.

Using this window of opportunity, the industry had imported 1,28,462 tonne. In the corresponding period last year, imports were a mere 97,862 tonne. This had slowed down domestic demand, pushing down NR prices. Total imports (as on September 30) have crossed 160,000 tonne.

Besides, there seem to be changes in the conventional ratio of synthetic rubber and natural rubber in tyre manufacturing in recent times in favour of synthetic rubber. Its consumption has been increasing at more than 20% year-on-year for the past five years.

Both rubber growers and dealers are worried about the fall in demand for natural rubber. Among the slew of demands that Indian Rubber Dealers' Federation (IRDF) has put up before the commerce ministry, the most crucial is that the Centre should gear up for rubber procurement if industrial demand does not pick up in coming days. "In April, the Union commerce minister had given the assurance to ramp up import duty on natural rubber to R34 from the current R20 per kg. This needs to be done at the earliest," George Valy, president, IRDF, told FE.

The dealers have also sought that the Forward Markets Commission (FMC) maintain transparency in futures trading, with no trading on Saturdays in tune with those for metals. It also wants natural rubber to be spared from late-hour trading.

There is irony in the panic response of growers and dealers since just last season the market was facing a supply shortage. While the International Rubber Supply Group expects global production to rise 3.5% in 2013 to 11.7 million tonne, with an estimated surplus of 2,84,000 tonne, in India, the Rubber Board has cut its estimate for financial year 2013-14 due to unprecedented rains and the subsequent havoc in plantations. The projected closing stock of NR for 2013-14 is 2,70,000 tonne, says Rubber Board chairman Sheela Thomas.

However, in the short term, production has picked up in almost all plantations as there is more sunshine. "Recently, tapping has picking up in plantations, improving the farm-to-market stock movement. At the same time, we are yet to see corresponding industrial demand," says Siby Monipally, secretary, Indian Rubber Growers' Association (IRGA).

As fading industrial demand for rubber in the domestic market and rising rubber imports reflect a pro-industry situation, policymakers may have to intervene by either procuring rubber or by raising import tariffs. Indications are that international rubber prices are heading north, with NR global consumption projected to grow 1.5% in 2013 and 4.1% in 2014. If this happens, the rubber industry's import appetite could just disappear.