By A.Saj Mathews
There are signs of a slight breather in the ailing natural rubber market thanks to a revival in the Chinese demand, upward trend in crude oil price, appreciation of US dollar etc. Meanwhile, in the Indian context, demonetisation policy of the Government appears to be a hurdle in capitalising the favourable price difference between domestic and international prices.
The international prices of natural rubber (NR) has been rising since the second week of November 2016, and is currently hovering at higher levels compared to Indian prices. The spurt is being attributed to the increased demand for rubber from China, upward trend in crude oil price, appreciation of US dollar among other things. Natural rubber is predominantly an export commodity in the major NR producing countries like Thailand, Malaysia, Indonesia , Vietnam etc. and rubber prices are highly sensitive to speculative news from major consuming countries like China, India , Japan etc.
If we look at the Indian scenario, despite being the peak production season, rubber arrivals into the Indian market during the 2017 have been affected badly in the wake of currency crunch. The ceiling limit on cash withdrawal from banks has put Indian rubber farmers especially those of Kerala, the home of Indian NR, in a traumatic situation as they are accustomed to liquid cash transactions, according to rubber market sources.
Today, small farmers, especially those engaged in rubber farming in less than one acre, are now reluctant to collect cheques from traders. They have even stopped sheet delivery due to currency shortage. Normally, the sector witnesses a daily trade of approximately 1,000 tonnes with an estimated value of Rs 120 million and this transaction is almost at a standstill, according to market sources.
The cash- crunch also hinders the activities in the allied sectors of rubber, which involves tapping, transportation, loading and unloading of rubber sheets and the cargo movement to upcountry markets. The emerging situation has also forced tyre-manufacturing companies to slow down the procurement from the open market. According to reports, the current situation has forced farmers to slowdown production especially in the absence of having any liquid cash returns.
Rubber Board’s optimism
Meanwhile, Rubber Board, India, states that owing to price advantage, export of rubber from the country has picked up momentum. The price of natural rubber (NR) in India has been ruling high over international market prices since December 2013.
The Indian sheet rubber prices were significantly higher during the last three years and a marked difference of Rs.35 per kg was noticed between Indian RSS4 grade and the comparable RSS3 grade in the Bangkok market during July 2016. This glaring price gap between the Indian and international prices came down in the third quarter of 2016. From the second week of November 2016, the international prices of NR shot up and is currently hovering at higher levels compared to the Indian prices.
Natural rubber is predominantly an export commodity in the major NR producing countries like Thailand, Malaysia, Indonesia, Vietnam etc. It may also be noted that rubber prices are highly sensitive to speculative news from major consuming countries like China, India, Japan etc.
According to the Indian Rubber Board, the sudden upward trend witnessed in the international rubber market is due to the prevailing speculative trend resulting from the aforesaid reasons coupled with the surge in Shanghai and TOCOM Exchanges in China and Japan. In India, natural rubber is traditionally not an export commodity and the major share of the rubber produced in the country is consumed domestically. So the response to speculative price movements owing to reasons not specific to domestic market will be relatively less in India as compared to other major NR producing countries. However, the Indian rubber prices generally track international prices and the market invariably adjusts to international prices forthwith, often with a time lag.
Rubber Board, India, is keen in capitalising on the price advantage by promoting export of NR. This would raise domestic NR price to the world market levels, says the Board. Owing to unattractive relative prices, India’s exports have been negligible since 2013-14. In 2016-17, during April-October period, India’s NR exports were hardly 650 tonnes. Exports gained momentum in November-December 2016. It is expected that India’s NR export may touch around 5,000 tonnes during this year.
The Rubber Board has been promoting the brand “Indian Natural Rubber” for exports, by which the quality of rubber exported from the country is certified by the Board. Eighty per cent of the NR export done so far this fiscal was under the brand “Indian Natural Rubber“. The branding of NR is instrumental in regaining the market share of the Indian exporters as the exports from India have been negligible during the last three years. Export of NR is an alternative marketing channel and such efforts will help to maintain consistency in the domestic market price.
The global natural rubber industry is being driven by “favourable supply-demand fundamentals,” according to the December 7 Report of the Association of Natural Rubber Producing Countries (ANRPC). Supply of natural rubber from ANRPC member countries is expected to grow marginally, according to the report.
Supply of natural rubber from ANRPC member countries is expected to grow marginally by 0.1 per cent to 11.08 million tonnes during 2016, while consumption by the member countries is anticipated to show a healthy 4.1 per cent growth at 8 million tonnes this year. Consumption by ANRPC member countries accounts for 65% of the global demand, the Association says.
Price-wise, the up-trend momentum in October improved in November across all major physical markets, according to the report. ANRPC attributes this up-trend to favourable supply-demand fundamentals.