The Hindu Business Line : Growers hold back stocks as rubber prices zoom

Chennai, Feb. 21 Prices of natural rubber, which topped Rs 100 a kg this week and were quoted at Rs 101 on Thursday, have witnessed a sudden rise during the last 10 days. And despite higher prices, buyers are not able to find stocks.

“No one knows what is happening in the rubber market. Looks like it is being driven by speculation rather than any physical transaction,” said Prof K.K. Abraham, President of the Pala Marketing Cooperative Society.

Prices for RSS-4 (ribbed smoked sheet) had been ruling steady at Rs 94 a kg until the beginning of last week before the current bull run began. “The rates had been consistent around Rs 94 in the last two months. There is no rhyme or reason for the sudden rise in the last few days,” said Mr Radhakrishnan of the Cochin Rubber Merchants Association.

Analysts, however, attribute the sudden rise to two factors. One, the rise in prices of crude oil, which touched a record $101.10 a barrel on Wednesday. Two, early wintering of trees, when the leaves are shed, in Thailand, the top rubber producer of the world. Crude oil derivatives are used in production of synthetic rubber, which is an alternative to natural rubber and wintering means trees cannot be tapped.

‘alarm bells’

The rise in prices has left the user industry such as the tyre manufacturers worried. “Rubber price having crossed the Rs 100 a kg mark this week rings alarm bells for the tyre industry. An increase of Rs 5-6 a kg within a week has placed tremendous cost push pressure on the tyre industry,” said Dr R.P. Singhania, Chairman of the Automotive Tyre Manufacturers’ Association. According to the association, an increase of Rs 5 a kg in rubber price translates into an input cost increase of over Rs 100 for each truck and bus tyre.

What is more worrying is that the increase comes during the peak production period and when stocks are projected at around two lakh tonnes. “We are surprised with the sudden rise as it is a peak production period now,” Dr Singhania said.

“Stocks at the end of January were estimated at 2.20 lakh tonnes. February production is projected at 55,000 tonnes and domestic consumption at 75,000 tonnes. About 12,000 tonnes are being exported but imports are also taking place. But taking everything into consideration, there should be a carryover stock of 1.8-1.9 lakh tonnes by the end of March,” said Mr Radhakrishnan. “But we don’t find the stocks in the market,” said officials of the All-India Rubber Industries Association during a press briefing in Chennai.

“Maybe, growers could be holding stocks,” said Prof Abraham.

“Growers have been receiving fantastic prices during the last couple of years. Even small growers have been getting a good price and this has given them the capacity to hold on to their stocks. They are holding back quite a lot,” said Mr Radhakrishnan.

Tapping

The good prices are also seeing growers continue tapping now, which is unusual. Usually, tapping is stopped around February second week and is resumed by March-end or early April. The good prices are encouraging them to continue tapping,” Mr Radhakrishnan said.

Though this year, production is seen lower at around 8.39 lakh tonnes against a consumption of 8.59 lakh tonnes. The stocks that can last for over two months are seen as a factor that can keep a leash on the prices. That, however, is not happening as growers, in expectation of good prices, are not bringing their produce to the market. Besides, nearly 75,000 tonnes of rubber have been imported, while exports are likely to be around 45,000 tonnes.

Industry and trade sources also blame the rise in prices to speculation. “This trend will have an adverse effect on the industry, especially tyre sector,” Dr Singhania said.