Rubber Producers Troubled by Fluctuating Prices

India's natural rubber (NR) industry is coping with difficult times as tyre companies cut down their production due to the initial signs of the slowdown at the Indian automobile companies. New tyre sales have also been affected due to low vehicle sales. In all likelihood, the Indian automobile industry will either record flat or slightly lower sales by end of the fiscal year in March 2009. However, difficult times are ahead as the full impact of the slowdown in the automobile sector is anticipated around the end of the first quarter of fiscal 2009. With vehicle demand likely to further decline this year, Indian tyre manufacturers may further cut production, reducing the off-take of rubber from the rubber producers.

Interestingly, the price of NR has gone down to around INR 70 and it is likely to fall further to INR 60 in the coming months. The rubber producers hope that the reduction in prices will increase demand. The other interesting fact is rubber prices follow the trend of oil prices. When oil prices were hovering around US$ 140 per barrel, NR prices were also around INR 140 in the Indian market. But now the oil prices have gone down to US$ 40 a barrel rubber prices have reduced to INR 70 and expected fall further.

One of the largest producers of rubber in India - 'Rubber Mark' produced 15,000 tonnes of rubber in 2008, a fraction of its total capacity. It will probably hike the production to 20,000 tonnes in 2009, anticipating an increase in demand due to low NR prices. Interestingly, less production in 2008 has nothing to do with the ongoing recession. "We have no finances as a result, we procured less, processed less and sold less," informed a source in Rubber Mark on condition of anonymity. Moreover, Rubber Mark also lost lot of money in trading. Prices fluctuated all the time. When prices were skyrocketing, Rubber Mark purchased NR for INR 140 a kg but sold the processed rubber at INR 130. Subsequently, when it purchased at INR 130 by the time it processed and sold in the market it had dropped to INR 110. Therefore, it lost a lot of money through trading. Fluctuating rubber prices have been a real throughout 2008. "If NR prices come down by INR1 per kilo, a rubber trader could lose INR 1000 on a tonne." The Kerala State Cooperative Rubber Marketing Federation Ltd., popularly known as RubberMark was incorporated in 1971, as an apex institution of the primary Rubber Marketing Cooperatives in Kerala. It is a professionally managed organization with 38 member societies spread throughout the State of Kerala with active participation of the Rubber Board and the Government of Kerala.

It is known that Rubber Mark persuading the state government of Kerala to support Rubber Mark by allocating INR 100 crore to finance the purchase of Natural Rubber this year. "If we had the required finances, we could process up to 100,000 tonnes annually," said the source. Rubber Mark also manufactures tread. It also exports NR to countries like China, Iran, Iraq and Nepal, besides catering for the Indian tyre manufacturers.

The plight of rubber traders is no better as fluctuation has caused haevy losses for them as well. Many of them booked orders when rubber prices were on the up but were delivered at as much as half the rate paid.

The weakening of the Indian Rupee against the Dollar also caused a major setback for NR traders in the international market. "The Dollar is at all time high of around INR 49 now, whereas, it used to be around INR 39 about eight months ago. We have booked orders when the Dollar was around INR 40 but delivered the consignment when the Dollar reached around INR 44-45 losing lots of money in exports," said concerned exporter Anil Kumar of Anil Rubber. Moreover, if the Dollar rate is favourable for India, rubber rates are not favourable as rubber prices have gone down drastically in the domestic market, almost at par with international market. Now, there is hardly any difference in the international rubber prices and domestic rubber prices.

"We follow the Tokyo exchange, the rubber prices are around INR 70 in the international market on par with domestic market," complained A V Mathai of Ideal Crumb Rubber, which has a production facility in the rubber production hub of North Kerala. Moreover, rubber producers were also complaining about the fluctuation in prices even over a short 4-5 day period. They procure raw rubber, take 4-5 days to process it and by that time the rubber prices have changed. "Apart from that, about 20 per cent out of the raw rubber they procure gets wasted during production, the final yield is around 80 per cent and this plus continued fluctuation in rubber prices in short term is a cause of major concern," Mathai complained.

It has also been recorded that rain compounded problems in Kerala last year. Rubber production dropped last year as there was lot of rain over the four month harvest period in Kerela. Rubber producers do produce during the rainy season but prices are impacted. There must be some benchmark price set by the government. If the prices goes up or down during the lean season, government should procure the rubber at a suitable set price to assist the Natural Rubber producers.

Issue 2009/1