Import duty hike, dragon effect push up natural rubber price

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Published: May 7, 2015 12:08:03 AM

Close on the heels of  finance minister Arun Jaitley’s announcement of raising the customs duty on  natural rubber (NR),  price of NR in the domestic market has perked up a tad. In the last five days, the price of RSS-4 grade rubber has touched R126 per kilo, logging a perceptible increase of  R4 per kilo.

“The timing of the announcement could not have, probably, come on a better moment” says Siby J  Monipally, general secretary, Indian Rubber Growers Association (IRGA). The customs duty hike is to be effective only from June 1. “But then, besides the psychological factor unleashed by the import duty hike decision, the simultaneous surge in international price of NR has also helped in pushing up domestic price, ” he told FE.

In TOCOM ( Tokyo Commodity Exchange), price of NR has climbed to 215 yen this week from 196 yen in the last week of April. In SICOM (Singapore Commodity Exchange), RSS-3 has appreciated slightly to the equivalent of R8 per kilo in the last week. According to Rubber Board officials, this was mainly because of the presence of  small and medium companies in China mopping up the surplus NR in the international market. China’s rubber shopping spree in Malaysia and Indonesia could have indirectly assisted the price recovery in Indian market, along with the import duty hike announcement.

The average price of RSS-4 grade rubber was R166 per kg during 2013-14. The average price had fallen to R119 during November 2014, causing a hue and cry in  Indian rubber plantations. By a rough estimate, earnings of rubber farmers in the main producing belt Kottayam (in Kerala) had fallen by R3,500 crore, during the Christmas season of 2014.  “Rubber replanting initiatives, too, have gone haywire, after the long season of price fall,” says Josekutty Antony, president, Rubber Nursery Owners Association.

While there is some excitement in the plantations that the free fall in NR prices has been arrested, market pundits are sceptic whether further price increase at off-season would be counter-productive. According to Rubber Board data, NR production fell to 12-year low at 6.55 lakh tonne in 2014-15 from 7.74 lakh tonne in the previous year.  In 2012-13, this was 8 lakh tonne. “By the time, the tapping season is on full-fledged in November-December, the current price differential between international price and domestic price should hold good. Otherwise, the consuming rubber industry might be tempted to stock up through import contracts,” says P Abraham Koruthu, a leading rubber grower.

India’s rubber imports touched a high at 4.15 lakh tonne in 2014-15, triggered by  lower international prices and fall in domestic production, according to the Rubber Board data. During 2013-14, rubber imports were only 3.60 lakh tonne.

Alarmed by the  unprecedented growth in NR imports, rubber growers had approached Prime Minister Narendra Modi, Union finance minister Arun Jaitley and commerce minister Nirmala Sitharaman for stepping up the customs duty rate of NR.  The government had, last week, announced its decision to hike import duty from 20% to 25%, after studying the market crisis. The results of the market intervention would also depend on the growth in the country’s rubber production in the coming days.

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