Indian rubber prices at 4-year high on global cues, Chinese buying

Rubber prices in the Indian market have risen to Rs 150 a kg after four years on growing demand from China and supply problems facing major producers such as Vietnam, Indonesia and Cambodia.

According to the Indian rubber board, ribbed smoked sheet-3 (RSS-3) grade, at par with India’s RSS4, quoted at $242.1 a quintal (Rs 17,850). RSS4 was quoting at Rs 149 a kg on October 25, the board said.

Some traders sold RSS4 grade at Rs 150 kg, the Malayalam daily Malayala Manorama reported. On the Indian Commodity Exchange, December rubber contracts closed at Rs 14,397 a quintal on October 23.

“The rise in Indian prices has got nothing to do with domestic developments. There are production problems in Vietnam due to heavy rain. There are also problems in countries such as Malaysia, Indonesia and Thailand, key suppliers to the global market,” said N Radhakrishnan, former Cochin Rubber Merchants Association and a dealer.

Indian prices were at least Rs 17 lower than global prices, said R Sanjith Nair, Secretary, United Planters Associaton of Southern India (UPASI). “Domestic prices are ruling over Rs 140,” he said.

The coronavirus outbreak resulted in lower tapping globally, Radhakrishnan said. “We are seeing demand from China but no one is sure if consumption there is rising,” he said.

“China’s offtake from the global market has gone up sharply, pushing up global prices. It has been actively buying rubber and other commodities too,” said Rajiv Buddhraja, Director-General, Automotive Tyre Manufacturers Association (ATMA).

China resumed production ahead of India and manufacturing activities were back to normal in April. Since then, China has been on a buying spree. Probably, pent-up demand was supporting higher production, Buddhraja said.

ATMA is the apex body of tyre-manufacturing firms, which account for 90 percent of the production in the country.

The Association of Natural Rubber Producing Countries (ANRPC) said Chinese demand for tyres from the automobile sector was recovering, pushing up prices.

The association reported an 8.7 percent fall in global production to 7.778 million tonnes. It expects production to be 6.8 percent lower this year at 12.90 million tonnes.

Low prices, higher costs

This has resulted in rubber prices rising 78 percent since dropping to nearly Rs 100 a kg in April 2020. Despite the increase, Indian rubber production is expected to be low as the increased price is still lower than production costs in southern India.

Low prices and higher costs are the main reason that India produces around seven lakh tonnes of rubber annually against the potential to produce nine lakh tonnes.

A 2017 study by the rubber board estimated that the production costs, particularly in Kerala, at Rs 170 a kg, said UPASI’s Nair.

“There will not be any interest among southern India planters until prices touch Rs 160 kg. Production will gather pace once prices top Rs 175,” Radhakrishnan said.

The production cost in Kerala was high. It costs Rs 800 a day to engage a worker for tapping. In the Northeast, which is seeing a rise in rubber production, the cost is lower, he said.

Annual rubber production in the Northeast has increased to nearly one lakh tonnes.

Heavy rains in Kerala’s rubber-growing areas, particularly Kottayam and Idukki, has hit production but is expected to pick up. November-January is the peak time.

“During the peak production season, the output tops one lakh tonnes a month. Now production is around 60,000 tonnes a month. The rise in prices could result in production increasing to nearly 80,000 tonnes,” Radhakrishnan said.

Buddhraja said tyre manufacturers were facing tight supply as they had not planned or contracted imports. Supply within the country was also curtailed.

“If the situation continues for another couple of weeks, it would be a major concern for the tyre industry,” he said.

Tyre companies were shut during April-June to prevent the spread of the coronavirus pandemic. During July-September, tyre production was good and the current quarter to December “will hopefully be better”, the ATMA Director-General said.

Rubber production was expected to be good since the moisture was good as also rains. There has been a better rejuvenation of the plants, Buddhraja said.

Radhakrishnan said the tyre companies were importing more of technically specified rubber (TSR) these days. In India, it is known as ISNR-20 (India standard natural rubber).

“It is cheaper than RSS rubber. TSR is a good option for tyre companies,” he said.

“Nearly 85 percent of rubber trade globally is in TSR form. Sheet rubber is available only in select countries such as Thailand and India,” Buddhraja said, explaining the reasons for importing TSR.

Currently, TSR is at least Rs 20,000 a tonne cheaper than sheet rubber. It was trading at $164.50 (Rs 12,125) a quintal over the weekend in the global market.

Buddhraja said tyre companies were working at 80-85 percent of their pre-COVID capacity and there was room for improvement.

Tyre companies are seeing good demand for tractor and two-wheeler tyres. “But incremental growth in tractor tyres, double the pre-COVID levels, has been offset by slower growth of tyres of commercial vehicles such as trucks and buses,” Buddhraja said.

Tyre firms supply tyres to original equipment manufacturers (OEM) for new vehicles and according to the ATMA official, tyre supply to truck and bus OEMs was lower by at least 50 percent this year.

“The tyre replacement market has also been badly hit,” Buddhraja said.

At least 50 percent of two-wheeler and passenger car tyres are supplied to OEMs. In the case of tractors, supplies to OEMs make up a third of the total production and in the case of commercial vehicles, it is two-thirds.