Rubber prices set to recover as imports begin to decline

Recent import duty hike, Indian supply deficit narrow gap with global price

After remaining subdued for a long time, the natural rubber counter is expected to see some cheer in the coming months, as prices are expected to recover with falling imports. The recent import duty hike on rubber and narrowing of the price gap between Indian and international prices is likely to bring down imports and increase demand for domestic rubber.

With a supply deficit in Indian market, natural rubber imports were rising in recent years. The higher premium on domestic rubber too forced rubber product manufacturers to resort to imports. Natural rubber imports grew from 217,364 tonnes at the end of March 2013 to 324,467 tonnes in March 2014 and further to 414,606 tonnes this March. While production has been down 15 per cent this fiscal, consumption has grown 3.2 per cent.

“Logically speaking, imports should come down in the coming months. The government has hiked the import duty while the difference between domestic and international prices too has narrowed,” said Hareesh V, senior analyst at Geofin Comtrade.

On April 30, the government increased import duty on natural rubber from 20 per cent to 25 per cent in a bid to lift the sagging prices, annoying the rubber products manufacturing industry. “India is grossly deficient in natural rubber production. The gap between domestic production and consumption has reached 3.6 lakh tonnes, and there is no alternative but to import rubber.

The decision to increase import duty on the principal raw material will deal a severe blow to the value addition within the country. The make-in-India initiative of the government will be seriously compromised as far as the rubber sector is concerned,” said Mohinder Gupta, president of All India Rubber Industries’ Association (AIRIA) while reacting to the duty hike.

The gap between domestic and international rubber prices has since narrowed to Rs 8 per kg compared to Rs 23 in February. While spot prices in Kottayam were ruling around Rs 125 per kg last week, the Bangkok prices averaged Rs 117. Measures taken by the Thailand government to support the sagging prices in Bangkok led to some success in recovery. Compared to Indian prices, Bangkok prices had fallen sharply from a high of 198 baht in 2011 to 59 baht last year.

In India, the steps taken by government were not very successful. On the National Multi-Commodity Exchange, rubber prices after the duty hike moved up to Rs 132 from Rs 116-129 level.

In March, the Kerala government declared a minimum support price of Rs 150 per kg for rubber and allocated Rs 300 crore to procure 20,000 tonnes from the market. Union commerce minister Nirmala Sitharaman, too, had announced a market-linked insurance scheme for rubber growers. The minister also proposed enhancement of subsidy to the growers to Rs 35,000 per hectare from Rs 25,000. But prices hardly moved.

“At the current price levels, it will not be viable for consumers to import rubber from the overseas market and this can increase the demand for domestic rubber. Once demand picks up, prices will move up too. If the prices break the Rs 132 level, they can move up to Rs 142 and then Rs 148 a kg. This will lead to an increase in volumes and the number of participants in the futures market,” said Hareesh.