Sharp dip in India’s natural rubber output

September 14, 2018

RubberIndia is forecasting a decline in natural rubber output by 18 to 20% this year that will negatively impact the tyre industry, says ICRA Ltd., an investment information and credit rating agency.

The floods in Kerala, due to unusually high rainfall,are partly to blame for the sharp fall in natural rubber (NR) which accounts for 35% of the overall input costs in the manufacture of tyres. This may result in pressure on operating margins of tyre manufacturers, ICRA said.

“Inundation and landslides in few districts, apart from the possible threat of diseases on immature plants will dampen the production over the next few months, the critical tapping season. We expect the NR output to decline by 130,000-140,000 tonnes (18-20%)l during FY2019,” said K Srikumar, vice president, corporate sector ratings of ICRA.

He added that NR accounts for 32% and 35% of total inputs, in volume and value terms respectively, with other key inputs including crude derivatives like synthetic rubber, carbon black, fabric, and rubber chemicals.

NR accounts for over 20% of Kerala’s total cultivated land and Kerala contributes a massive 84% of output in the country. With 8% of the global output, India is the second largest consumer of NR, after China. During FY2018, India produced 690,000 tonnes of NR but consumed 11.1 tonnes, with the supply gap being fully met through imports from surrounding regions like Indonesia, Thailand, and Vietnam.

Imports have accounted for 40% of consumption in the last five years; and the same is expected to reach 50% during FY2019 with the dip anticipated in output. In other words, NR imports are expected to reach record 530,000-550,000 tonnes in FY2019, ICRA said in a statement.

Globally, there was a supply deficiency of 700,000 tonnes during Jan-July 2018 due to lower production by Malaysia, Vietnam, and India on top of temperamental weather conditions, and controlled production by Thailand. However, with increased tapping in other key regions in the next few months, the global shortfall scenario should improve.

“As the domestic NR prices continue to increase due to supply shortage concerns, domestic tyre makers continue to import with the current landed costs lower than domestic prices. However, with the expected rise in both domestic and global prices, exacerbated by the depreciating rupee, the tyre manufacturers are likely to witness pressure on margins. ICRA expects a 100-bps contraction in operating profit margins for FY2019,’’ Srikumar said.

With demand exceeding supply, domestic NR prices have increased by over 10% during the period Apr-Aug 2018, including an increase of over 5% in the last one month. However, the global NR prices were down by 9% during Apr-Aug 2018 following concerns over off-take from China. Though the global prices are trading at a 25% discount to domestic prices (as of end August 2018), this is expected to be short-lived with global demand outstripping supply and receding stock levels.

 

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Rubber Prices
(Last Updated: 12 Nov 2018)

Monthly The prices shown above do not include VAT @4% on purchase and expenses towards packing, transportation, warehousing  and other incidentals


Source: Latex India

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