Rubber prices soften but exports could put a stop to further decline

Written by M Sarita Varma | Thrivananthapuram | Updated: Nov 16 2010, 06:43am hrs
After rising to historic highs, natural rubber prices have softened to Rs 200 per kg from Rs 206 per kg last week. However, market watchers said showers in Kerala's main plantation belt and rising exports are likely to keep prices well supported here onwards.

Sources at rubber bourses in Kottayam told FE that the drop in prices could bring more rubber smoked sheets (RSS), stockpiled by dealers, to the market. Dealers supplying to tyre firms had bought over 4,000 tonne of RSS this season, but only about 1,500 tonne have changed hands to the tyre firms.

Apprehension of a reduction in tyre production by manufacturers has created fear of demand shrinking amongst traders. Several growers, on a wait-and-watch mode following the price rally, feel they had burned their fingers as industrial appetite seems to be somewhat petering out, a senior official from the Indian Rubber Growers Association said.

The buzz that tyre firms were gearing up to increase product prices and absorb rubber price costs has not affected farmers. On the contrary, some optimistic growers are counting on price crossing Rs 230 per kg by the first quarter of 2011.

However, market sources said this kind of price spiral can be ruled out, if tyre companies are actually planning to trim production. Over 60% of India's annual natural rubber production is consumed by the tyre manufacturers.

Automative Tyre Manufacturers Association(ATMA) threat to rollback tyre production and rubber inventories has come following unexpected floods in rubber plantations of Thailand. Similar, adverse weather has impacted production in Indonesia and Malaysia too this season.

Tyre firms fear that rubber imports from these countries could be delayed, turning their production schedules haywire.

India'a tyre industry has been leaning heavily on imports this year, as indicated from the data provided by the Rubber Board. Natural rubber imports in the first seven months of the current financial year grew to 132,724 tonne as against 132,106 tonne in the corresponding period last year.

The Met department had predicted showers in the plantation belt of Kerala till the end of the month, which should help growers. Natural rubber prices zoomed nearly 100% during the last 12 months, a Rubber Board data showed. The average price in November 2009, was at Rs 113 a kg, which rose to Rs 206 per kg in the first half of November 2010.