Indian rubber sector comes to terms with challenges

indiaINDIA, the world’s fourth largest producer and third largest consumer of natural rubber, is currently grappling with high imports to fill the supply-demand gap for natural rubber, among a host of other challenges. On the other hand, stakeholders are teaming up to resolve these issues, and new investments are expected to perk up the industry.

Early last year, natural rubber (NR) production in the country was curtailed by monsoon rains, easing off with the tapping season ending in January. For this reason, the tight domestic supply has led to yet a round of increased imports, especially since globally rubber prices are dropping. Tyre makers, in particular, benefit from the price drop, since NR accounts for more than 40% of the cost and make-up of a tyre.

Based on recently released data from the Indian Rubber Board (IRB), from April-December, NR imports increased from 91,135 tonnes to 264,576 tonnes, compared to the 173,441 tonnes imported over the same period a year earlier. On the other hand, the decline in domestic NR production in the same period was 70,200 tonnes, leaving a net excess of only 21,843 tonnes.

According to the Association of Natural Rubber Producing Countries (ANRPC), the country imports from Thailand, Indonesia and Malaysia – the latter being the largest exporter. It is also the world’s third largest rubber consumer, following China and the US. IRB noted that demand for NR on the home.

High imports versus low pricing
The subdued NR price is not quite a welcome situation for local growers, and the sector has been blaming the surge in imports for the price drop.

This prompted the government to increase the import tariff to 20% effective December 2013. The new import duty is now fixed at 30 rupees per kg against the previous levy of 20 rupees per kg.

Rubber and tyre sectors groups have contested this move, saying that the hike in duty could also hurt manufacturers. Furthermore, they contend that the soft demand globally, and not the increase in import volume, has caused local prices to drop. Local prices are hovering around 150 rupees per kg.

The All India Rubber Industries Association (AIRIA) says that the excess of about 20,000 tonnes derived from the increased imports during the April-December period is not significant enough to affect local prices, neither is it sufficient reason to prompt a hike in import duty.

Pitted against SR
The low production of NR also provides the opportunity for synthetic rubber (SR) to whisk off a substantial market share.

According to a new report from GlobalData, there is a burgeoning demand for SR in India stimulated by the country’s rapid urbanisation. The local tyre sector is the largest end-use sector, especially Styrene Butadiene Rubber (SBR) that accounts for 40% of the total synthetic rubber consumption. The rising need for SR is also encouraging new plants to be built to provide additional capacity. According to 2011 data from the International Institute of Synthetic Rubber Producers (IISRP), India has an output of only 128,000 tonnes/year. Thus, India is naturally deficient in the synthetic material.

Based on 2011-12 data from the IRB, India’s SR consumption jumped by 6% to 226,000 tonnes in the first half of 2011-2012 fiscal year, while production rose marginally to 54,778 tonnes. The domestic consumption was 213,000 tonnes from April-September in the 2011-12 fiscal period, while production was 54,750 tonnes. During the period, the tyre industry’s consumption increased by 8% to 167,000 tonnes from the previous year’s 155,000 tonnes.

Reliance Sibur Elastomers, the joint venture between Russian petrochemical firm Sibur and Indian conglomerate Reliance Industries is the country’s first manufacturer of butyl rubber. The facility located in Jamnagar, Gujarat, will have a capacity to provide some 100,000 tonnes/year synthetic rubber when it becomes operational this year. The country currently sources its butyl rubber from the US, Central Asia and Europe.

In December last year, Taiwan Synthetic Rubber Corporation (TSRC) and Japan’s Marubeni Corporation formed a partnership with the Indian Oil Company (IOC) to establish a styrene butadiene rubber (SBR) plant at IOC’s Panipat refinery.

Known as Indian Synthetic Rubber (ISRL), it is the first and largest naphtha-cracker plant in the country with a capacity of 120,000 tonnes of SBR, targeted mostly for the automobile and tyre industries. The country is also importing SBR to meet domestic demands.

India is expected to achieve self-sufficiency in SBR with the operation of the ISRL facility, according to a report released this year by Fast Market Research.

Game plan
Meanwhile, the government is working on a national policy to respond to the issues faced by the rubber industry, most especially the NR producers.

A draft of the national policy is underway, with an inter-ministerial panel comprising all stakeholders working on the details.

In the middle of last year, the rubber industry saw the need for a national policy that would touch on issues like supply and demand projection as well as address duty inversion and other issues important to growers.

Likewise, the small-scale manufacturers are also pressed with high input costs, inverted duty structure, cheap imports and anticipated effects of the Free Trade Agreements (FTAs).

Meanwhile, IRB has devised a scheme whereby the country’s NR products will be encouraged to achieve world-standard quality by branding.

According to Suresh Babu of IRB’s Market Promotion Department (Indian Natural Rubber), India is the first in the world to brand its natural rubber.

“India has started the export of branded NR only recently, during the 2011/2012 period. This means, the scheme is still in the developing phase. It may also be noted that no other country in the world has adopted such a branding system for NR,” Suresh told PRA.

A seal or logo is used for rubber products that have been certified to have conformed to set standards. Exporters who participate in the branding scheme are allowed to use the logo on all their produce. “Less than 50 exporters in India have registered so far for the NR branding,” Suresh said.

While the logo signifies trust and quality for the products, will the branding push up revenues for the Indian rubber industry? “Since the scheme is still in its infancy, we have not yet assessed the (earnings) aspect, but in one or two years time of the branding adoption, we would be able to evaluate its benefits. Nevertheless, the Rubber Board will start conducting its assessment soon,” he said.