Natural rubber prices at 6-year high but growers are not selling

Natural rubber prices have surged to a six-year high in India but growers, particularly in Kerala, are not willing to sell the stock, preferring to wait and watch for a firm trend to emerge in the market.

“Natural rubber prices are ruling above Rs 160 now but growers are not selling. They expect prices to rise further, though stocks with them are low,” said rubber dealer N Radhakrishnan, who is also a former Cochin Rubber Merchants Association president.

On December 1, RSS-4 (ribbed smoked sheet) rubber, the main grade, was quoting at Rs 163 a kg in Kottayam, according to the Rubber Board. Since 2014, rubber prices haven’t been this high.

In the global market, RSS-3, considered on par with India’s RSS-4, was quoted at $244.80 per 100 kg or Rs 180.63 a kg.

Since April 1, 2020, natural rubber prices have almost doubled in the global market. The surge has been mainly attributed to global factors, particularly China purchasing good volume.

Three reasons for the price surge

United Planters Association of Southern India (UPASI) vice-chairman MP Cherian said, “There are three reasons why prices have increased so much. One, China seems to be buying in the global market. Second, production in Thailand has been affected due to novel coronavirus-related travel restrictions. This has prevented tappers from Laos and Myanmar going to Thai rubber plantations.

“Third, rubber trees in South-East Asia have been affected by pestalotiopsis, a fungal disease that causes abnormal fall in leaves.”

According to Cherian, rubber prices are witnessing traction in the domestic market since CENEX (Centrifuged latex of 60 percent of dry rubber content was recently exported. He didn't specify the port of destination.

“Since rubber has been taken out of the country in the form of CENEX and also because production is lower, prices have increased,” the UPASI vice-chairman said.

Radhakrishnan said Indian rubber production was lower this year since growers had given a go-by to tapping in view of lower prices.

Lower global production

“Globally, rubber production has been affected by floods in South-East Asia apart from the leaf-falling disease,” Radhakrishnan said.

Data from the Association of Natural Rubber Producing Countries (ANRPC) show that global rubber production dropped 8.7 percent to 7.78 million tonnes in January-August this year. The association expects production to be 6.8 percent lower at 12.90 million tonnes.

In India, the Rubber Board data showed that production was 26.8 percent lower in April-July this year at 1.34 lakh tonnes. Consumption was 39 percent lower at 2.37 lakh tonnes against 3.89 lakh tonnes a year ago.

Consumption by tyre manufacturers was down 41 percent at 1.64 lakh tonnes during the same period.

“Indian growers could wait for a couple of days to see the price trend before deciding to sell. They are probably looking at a price range of Rs 180-185 a kg,” Radhakrishnan said.

Tough going for tyre manufacturers

Tyre manufacturing companies are finding the going tough in face of rising prices.

“The overall situation with regard to availability is not good. On top of this, the quality of rubber that companies use for manufacturing truck and bus radial tyres is not good,” said Rajiv Budhraja, Director-General, Automotive Tyre Manufacturers Association (ATMA).

Tyre-manufacturing companies account for 68 percent of the total rubber consumption in India. Radial tyres are high performing ones that last longer and provide better mileage for the vehicle.

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

Budhraja attributed the rise in prices to pent-up demand soon after the economy opened up in many countries after the lockdown. “We have to see how long this trend will continue and if it is sustainable,” he said.

Radhakrishnan said the recent Regional Comprehensive Economic Partnership (RCEP) treaty in which China was part of a 15-member group would result in higher purchase of rubber by Beijing.

“China will now look to increase its production of various goods. Thus, it will try to stock up more raw materials including natural rubber,” he said, adding that Beijing will now enjoy an added advantage of having bought natural rubber at lower prices.

Higher landed cost of imported rubber

The problem for the user industry like tyre manufacturers is that the landed price of natural rubber imports, including 25 percent customs duty, will now be around Rs 230 a kg since global prices are, unusually, ruling higher than domestic prices.

Usually, domestic prices rule higher than global prices and was the main reason why natural rubber could not be exported.

The surge in natural rubber prices could see growers showing renewed interest in producing more. “Some of the areas under rubber have given way to fruit crops in central Kerala but there are a lot of areas that are lying untapped and they may come back,” said UPASI’s Cherian.

Radhakrishnan concurred with Cherian’s view. In November, domestic rubber production would pick up once prices top Rs 175.

A 2017 study by the Rubber Board estimated that the production costs, particularly in Kerala, at Rs 170 a kg.

Low prices for natural rubber and higher cultivation costs had been discouraging growers. It resulted in production dropping from a record high of 9.12 lakh tonnes 2012-13 to 6.51 lakh tonnes during 2018-19. Last year, the output increased to 7.12 lakh tonnes but it could be lower this year due to COVID-19 that forced a shutdown of plantations and industries.