Crude price rise rubs NR growers the right way

With crude oil prices slowly inching towards $80/barrel, synthetic rubber is becoming less attractive for rubber-based industries, including tyre makers, boosting the price of natural rubber (NR).

The market rates of NR shot past `120/kg recently with the crude prices touching the highest since 2014. The NR price in India had reached an all-time high at `243 per kg in 2011 when the global crude oil averaged above 100$/barrel. Since then, NR prices have been on a downward spiral, hitting a low of `95/kg in 2015.

The US' withdrawal from the Iran nuclear deal is set to drive up crude oil prices even further. Global NR prices touched `118 per kg on Thursday while in India the RSS-4 variety is trading at `122/kg.

"It's widely observed the demand for NR picks up when the prices of crude oil and corresponding synthetic rubber go up," said N M Mathew, vice chairman, Indian Rubber Institute. He said despite the upcoming monsoon, domestic production will pick up once NR prices register a significant growth.

On the factors affecting NR price, N Rajagopal, secretary-in-charge, Rubber Board India, said the demand for NR from China and currency exchange rates play a prominent role in determining its price.

China is the largest consumer of NR, using close to 40 per cent of the total global production. With decades of fast-paced growth led by exports, the global recession had forced the Chinese economy to transition more into a domestic consumption-led economy. This had resulted in a slowdown and depleting demand which is now stabilising with the economy posting a stable growth rate in the past few quarters, experts said.

The drop in the value of rupee against the dollar might also help domestic NR prices increase as imports become less attractive. The rupee breached 67 to the US dollar on Wednesday, which is a 15-month low. As global rubber prices increase, Indian manufacturers will be forced to turn to domestic producers to meet their demand which, in turn, will benefit the local rubber farmers. However, block rubber from East Asian markets still trades `25-`30 cheaper per kg when compared to domestic sheet rubber varieties. Block rubber constitutes about 70 per cent of the rubber imported by the tyre-manufacturing companies in India.

Siby Moniapally, secretary, Indian Rubber Growers' Association, said with the US, the world's largest economy, posting robust economic growth figures, ''we expect a growing demand for consumables like automobiles.'' He reiterated the fact that with the crude oil prices rising, synthetic rubber is becoming less attractive for manufacturers, making NR more attractive.

The high growth rate of Indian economy has resulted in record demand for NR in the past few years with consumption crossing well over 10 lakh tonnes. Sadly, with global NR prices staying lower than domestic supply, imports have been flooding the market.

On the rubber growers' plight, Thomson M, a resident of Waynad, said anything less than `120 per kg makes it difficult to meet the production cost. He said the government's support price of `150 per kg is often delayed by months, making it hard for farmers to sustain themselves.

With the global GDP growing 3.8 per cent last year, its strongest year since 2011, there is hope for global demand picking up further to result in a possible NR price hike. Initiatives like the East-Asian countries' (Thailand, Indonesia and Malaysia) efforts to limit export of NR earlier this year can further boost global NR prices.