Rubber prices have recovered slightly over the past one month. The market is expected to gain further strength once the Kerala government starts rubber procurement at the pre-determined price.
At the beginning of the year, prices stood at Rs 128 a kg at the National Multi-Commodity Exchange. After correcting to Rs 120 by mid-April, prices recovered to Rs 132 level last week.
Production has been sliding in recent years. Tapping has become unviable for rubber planters after prices fell amid rising labour and production costs. Data released by the Rubber Board showed an 11 % decline in production in the first two months of the financial year. This decline came on the heels of a 16 % drop in output in FY2014-15 over a 15 % drop in FY2013-14.
Production is expected to fall further in the coming months due to the monsoon rains. Due to subdued rubber prices, planters are not very keen on spending money on rain guards used for tapping during the rainy season. Several planters have shifted to other crops or are not going for replantation in recent years.
“This is the third consecutive year of drop in natural rubber production. Domestic rubber availability has emerged as a major concern for the rubber consuming industries,” said Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association (ATMA).
Till the first week of June, the price gap between domestic and international rubber prices had narrowed to Rs 6.5 a kg from Rs 23 in February. In May, the price gap stood at Rs 10 a kg. Steps taken by the governments of Thailand and Malaysia to lift the sagging prices have led to some recovery. The hike in import duty on natural rubber from 20 % to 25 % has made imports unviable for tyre and non-tyre manufacturers.
“Uncertainty in domestic natural rubber availability is giving jitters to rubber-based MSMEs, which do not have the wherewithal to keep large inventories,” said Mohinder Gupta, president of All India Rubber Industries Association (AIRIA).
These factors have helped the price recovery in the past few weeks. Going ahead, rubber procurement by the Kerala government will be a major factor influencing the counter. The state government had allocated Rs 300 crore in the budget for procuring rubber from traders at Rs 150 a kg. The price differential between market price and support price will be considered as a subsidy from the government.
Market sources said the government is expected to start procurement in a month or two. Analysts expect market prices to move up to Rs 145-Rs 150 a kg level once procurement starts.
However, the international prices will hold key even at that time. If the prices fall sharply, it will facilitate increased imports and the domestic demand will remain subdued, keeping the prices low. -mydigitalfc.com