Tyre cos seek temporary ban on rubber futures

Written by M Sarita Varma | Thiruvananthapuram | Updated: Oct 23 2010, 05:14am hrs
Tyre firms have drawn the attention of commodity market regulator, Forward Markets Commission (FMC) regarding alleged speculative activities in the futures markets which is pushing up natural rubber prices in physical market. The tyre makers body Automotive Tyre Manufacturers Association (ATMA) has demanded an immediate temporary suspension of futures trading in natural rubber.

We fear a bubble is in the making and something needs to be done to keep the market under check, Rajiv Budhraja, director general, ATMA, has said in a communique to the regulator and the Rubber Board. If natural rubber futures is not promptly stopped for a while, atleast the intraday price fluctuation limit should be brought down to 1% from the present 4%, the letter said.

On October 18, the futures price went up by as much as Rs 5 for November contract touching Rs 191 per Kg from Rs 186. On October 19, the futures have touched Rs 200 for January contracts.

Speculation has impacted the physical market significantly with the effect of hoarding. Rubber growers are holding back the stock expecting rise in prices aggravating the scarcity challenge of natural rubber for consumers, Budhraja told FE.

ATMA argues trading volumes have jumped to an average of 8,000 tonne from normal average of 3,000-4,000 tonne indicating heavy speculative activities. On the other hand, the open position has been successively coming down clearly indicating that intraday players are on the prowl.

Tyre industry has warned FMC that unless market is kept under check, there would be far-reaching adverse consequences for all genuine stakeholders in the natural rubber value chain, including rubber growers, dealers and consumers. Even as Rubber Board claims that countrys natural rubber stocks are at 2.75 lakh tonne, high levels of speculation is not justifiable, argues ATMA.

Normally local futures trends have a tendency to mirror Tokyo Commodity Exchange (TOCOM) trends. This week what alerted market-watchers was that rubber futures are zooming up. This was while TOCOM fell almost by 4 Yen on October 18, the day local futures went up by Rs 5.

If the Centre can not clamp a temporary ban on rubber futures, the next alternative would be to seek lowering the intra-day price fluctuation limit to 1% from the current price limits of 4%, says ATMA director general.