As prices for RSS-4 (ribbed smoked sheet grade 4) rubber hit Rs 100 a kg during the weekend, there was a unanimous opinion about the current run in the commodity.
That is, prices of natural rubber have been driven up 48 per cent in two months and 36 per cent in a month by sheer speculation.
Revival of futures in the commodity is also pointed out as another reason for the current run.
‘No reason for price rise’
“There is no fundamental reason for rubber to hit Rs 100 a kg now. Compared with last year, we have an exceptionally good production. On the other hand, consumption is almost stagnant by tyre and non-tyre sectors. With ending stocks last fiscal nearly double that the previous year, rubber is not worth the price the market quotes now,” said Mr Rajiv Buddhiraja, Director-General of the Automotive Tyre Manufacturers’ Association (ATMA).
He represents the body that is seen as a voice for eight large tyre companies that produce 90 per cent of the country’s output.
According to the Rubber Board, ending stocks on March 31 were 2.05 lakh tonnes against 1.08 lakh tonnes a year ago. Rubber production during 2008-09 is estimated at 8.65 lakh tonnes, up five per cent over a year ago. Consumption was up at 8.65 lakh tonnes from 8.61 lakh tonnes a year ago. Exports slipped 15 per cent to 45,430 tonnes but imports increased to 78,030 tonnes (68,826 tonnes).
“It is speculation by 10-15 dealers, who trade in rubber and also take part in futures trading, that is driving up the prices. We don’t think this price is sustainable,” said Mr N. Radhakrishnan, President of the Cochin Rubber Merchant Association.
Rubber makes up 41 per cent of the tyre companies’ input costs. The manufacturers consume 57 per cent of the rubber produced in the country. A Re 1 a kg rise in rubber prices translates into an additional cost of Rs 450 crore for the tyre sector in the country.
“This situation is not healthy for tyre companies as the economy is yet to revive. Also, global prices are Rs 13 a kg lower than domestic prices. This means, we have no option but to resort to imports,” Mr Buddhiraja said.
Mr Radhakrishnan agreed that the tyre companies had little option under these circumstances but to resort to “huge imports”.
Tapping low
“But we have to see other reasons too for the rise in prices. Tapping was low during February and March due to extremely hot conditions. Since there were no new rubber coming, the growers have held back old stocks, leading to tight supply,” Mr Radhakrishnan said.
“These speculators too added fuel, telling growers that prices will touch Rs 125 a kg. Therefore, the growers have found another reason to hold back stocks,” he said.
While rumours are afloat on sales default, Mr Radhakrishnan denied any default took place. “Tyre companies usually give orders on Tuesday for a week’s requirement and delivery has to be made in seven days. They are not having much by way of inventories,” Mr Radhakrishnan said.
“The tight supply has forced us to import around 20 per cent of our requirement during May-July,” Mr Buddhiraja.
Arrivals to begin May
Tyre companies are reported to have contracted to import about 25,000 tonnes. “Arrivals are set to begin from the first week of May,” the ATMA official said.
“But prices cannot rule at these levels without any fundamentals. The growing areas are experiencing rains and tapping is scheduled to resume soon. In a week or 10 days, arrivals will improve and, naturally, prices will have to come down,” said Mr Radhakrishnan.
“In fact, at that time there could be even panic sales of rubber. Needlessly, speculators and players in the futures market have raised the hopes of the growers,” he said.
Source : www.thehindubusinessline.com/2009/04/13/stories/2009041350700500.htm
That is, prices of natural rubber have been driven up 48 per cent in two months and 36 per cent in a month by sheer speculation.
Revival of futures in the commodity is also pointed out as another reason for the current run.
‘No reason for price rise’
“There is no fundamental reason for rubber to hit Rs 100 a kg now. Compared with last year, we have an exceptionally good production. On the other hand, consumption is almost stagnant by tyre and non-tyre sectors. With ending stocks last fiscal nearly double that the previous year, rubber is not worth the price the market quotes now,” said Mr Rajiv Buddhiraja, Director-General of the Automotive Tyre Manufacturers’ Association (ATMA).He represents the body that is seen as a voice for eight large tyre companies that produce 90 per cent of the country’s output.
According to the Rubber Board, ending stocks on March 31 were 2.05 lakh tonnes against 1.08 lakh tonnes a year ago. Rubber production during 2008-09 is estimated at 8.65 lakh tonnes, up five per cent over a year ago. Consumption was up at 8.65 lakh tonnes from 8.61 lakh tonnes a year ago. Exports slipped 15 per cent to 45,430 tonnes but imports increased to 78,030 tonnes (68,826 tonnes).
“It is speculation by 10-15 dealers, who trade in rubber and also take part in futures trading, that is driving up the prices. We don’t think this price is sustainable,” said Mr N. Radhakrishnan, President of the Cochin Rubber Merchant Association.
Rubber makes up 41 per cent of the tyre companies’ input costs. The manufacturers consume 57 per cent of the rubber produced in the country. A Re 1 a kg rise in rubber prices translates into an additional cost of Rs 450 crore for the tyre sector in the country.
“This situation is not healthy for tyre companies as the economy is yet to revive. Also, global prices are Rs 13 a kg lower than domestic prices. This means, we have no option but to resort to imports,” Mr Buddhiraja said.
Mr Radhakrishnan agreed that the tyre companies had little option under these circumstances but to resort to “huge imports”.
Tapping low
“But we have to see other reasons too for the rise in prices. Tapping was low during February and March due to extremely hot conditions. Since there were no new rubber coming, the growers have held back old stocks, leading to tight supply,” Mr Radhakrishnan said.
“These speculators too added fuel, telling growers that prices will touch Rs 125 a kg. Therefore, the growers have found another reason to hold back stocks,” he said.
While rumours are afloat on sales default, Mr Radhakrishnan denied any default took place. “Tyre companies usually give orders on Tuesday for a week’s requirement and delivery has to be made in seven days. They are not having much by way of inventories,” Mr Radhakrishnan said.
“The tight supply has forced us to import around 20 per cent of our requirement during May-July,” Mr Buddhiraja.
Arrivals to begin May
Tyre companies are reported to have contracted to import about 25,000 tonnes. “Arrivals are set to begin from the first week of May,” the ATMA official said.
“But prices cannot rule at these levels without any fundamentals. The growing areas are experiencing rains and tapping is scheduled to resume soon. In a week or 10 days, arrivals will improve and, naturally, prices will have to come down,” said Mr Radhakrishnan.
“In fact, at that time there could be even panic sales of rubber. Needlessly, speculators and players in the futures market have raised the hopes of the growers,” he said.
Source : www.thehindubusinessline.com/2009/04/13/stories/2009041350700500.htm
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