Natural rubber (NR) prices in India jumped to a two-and-a-half-year high last weekend on limited supplies and tracking gains in overseas markets due to supply disruptions in top producer Thailand, according to reports.

In the last weekend the spot price of the most-traded RSS-4 rubber (Ribbed smoked sheet) at the Kottayam market in the top producing southern state of Kerala (India) rose to Rs 146 rupees ($2.14) per kg, the highest since June 2014.

This of course is a welcome relief for the rubber farmers who were badly awaiting for such an upturn after the continuing steep fall in prices. However, on the other end, especially the tyre makers, the major consumers of NR this up trend does not augur well as it would increase their raw material cost thereby putting pressure on their profitability. Natural rubber makes up more than 40% of the cost of a tyre.

Meanwhile, benchmark TOCOM rubber futures rallied to their highest in nearly four years, extending gains into a third session, boosted by supply concerns after flooding hit a major rubber-producing area in Thailand. Thailand will lose around 10 percent of its rubber output in the 2016-2017 crop year due to flooding, Reuters reports quoting senior industry officials.

In fact, NR may not see a substantial price rise globally during 2017, according to the latest forecast of the Association of Natural Rubber Producing Countries (ANRPC) based in Kula Lumpur. This is despite the International Monetary Fund analysis that natural rubber price would gain much in 2017 compared to that of 2016.

Nguyen Ngoc Bich, ANRPC secretary general, says in ANRPC’s latest bulletin issued on January 13 that looking at the available picture of the emerging global economic scenario, “the possibility is very limited for a substantial rise in rubber prices during 2017”.

The presence of a large extent of untapped mature area, especially in Malaysia and India, and the space available for increasing the average yield across countries suggest that supply has the potential to increase much beyond the expected level, if the prices scale too high. This can prevent the market from scaling substantial rise, he said.