Rubber prices lack direction

Natural rubber prices have bottomed out below their multi-year low, but the commodity still lacks a clear direction on the price front. In terms of both demand and supply, the prices have not been getting any support from demand side for the past several months.

Bearish crude prices too have been weighing heavy on the commodity. For the past two months, the prices have been trading at Rs 120 a kg level. As crude prices started falling, rubber too fell to a low of Rs 110.25 on December 11. On the same day, Tokyo Commodity Exchange (TOCOM) saw price fall to 173.8 yen a kg from 208 yen in mid-November. Crude is a main raw material for the production of synthetic rubber

Prices did recover from the multi-year low despite crude falling further to a low of $53.60 on the New York Exchange on December 17. A few positive developments lifted market sentiments. China hiked import duty on rubber. The depreciation of the Japanese yen also boosted TOCOM prices. Moreover, rains in Thailand caused some disruption in tapping, raising supply concerns in the international market.

In India, the Kerala government held talks with leading tyre manufacturers on ways to support the sagging prices and help the farmers. Production has come down along with the price, as many farmers have stopped tapping. They find tapping in unviable at the current price level due to high labour cost, said Hareesh V, senior analyst at Geojit Comtrade.

Rubber Board data showed 64,000 tonnes of natural rubber production in November, down 25 per cent from 85,300 tonnes a year ago. The stock level has come down to 210,000 tonnes from 246,000 tonnes. Between April and November, production has slipped by 5.5 per cent against the previous year period. Meanwhile, consumption has improved slightly to 85,000 tonnes last month from 75,910 tonnes a year ago.

The meeting between tyre companies and the Kerala government decided to procure rubber from the domestic market at Rs 25 above international rates. The premium was fixed on the basis of import duty and logistics and storage costs that the companies incur while importing rubber from Malaysia or Thailand.

This helped sentiments in the market and prices rebounded to Rs 120 level. However, uncertainties still prevailed in the market. Crude prices are still looking bearish and there is no clear indication as to whether there will be any increased demand for rubber from China. If Indian tyre manufacturers procure rubber from the domestic market, imports will come down and this will affect international demand.

On the domestic front, while the industry and the government have agreed on the buying rate, there is no clarity on what quantum they will procure from farmers and traders.

“As of now, there is a positive sentiment in the market. But there is no clear direction and prices can move either way. On the resistance side, prices can move up to Rs 130 to Rs 132 in the near to medium term. On the other hand, Rs 116 is a good support,” said Hareesh.