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Here's why rubber production has shot up during the pandemic

Even Harrisons Malayalam, India’s biggest rubber producer, which was making losses in its plantations, could earn a marginal profit.

May 06, 2021 / 12:59 PM IST

Higher prices have bolstered the natural rubber production in India in 2020-21 amid a rampaging COVID crisis that has severely crippled demand.

The initial estimates of the Rubber Board indicate a marginal increase of about 0.4 percent to 7.15 lakh tonnes from a year ago. This is at a time when the consumption has slumped by nearly 4 percent to 10.9 lakh tonnes.

Rubber Board chairman and executive director KN Raghavan attributed the rise to three factors- a spike in the prices, higher installation of rain-guards in the plantations in Kerala (largest rubber producing state in India) and improved supply from rubber estates that remained untapped because of economic unviability.

"We managed to get the permission of the Kerala government to secure soft loans from co-operative banks at minimum interest for installation of rain guards. We covered 2.25 lakh hectares,’’ Raghavan said. This helped to improve supply during monsoon rains.

Though the first quarter of 2020-21 was a washout, the global rubber prices picked up from July with increased offtake by China and disruption in tapping due to COVID-19 and fungal diseases. In India, the average monthly price of RSS-4 grade that goes into the making of tyres rose from Rs 126.83 per kg in July to Rs 158.42 in December 2020. The prices breached Rs 160 per kg mark after a gap of several years.

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The sector received a further boost with the Kerala government raising the support price for small farmers by Rs 20 to Rs 170 per kg under the state incentive scheme. The RSS-4 grade price touched a high of Rs 171 per kg on April 7, 2021, and is ruling around Rs 168 per kg now.

Harrisons Malayalam Ltd (HML), India’s biggest rubber producer, which was making losses in its plantations, could earn a marginal profit last year. "The first quarter was bad and things started improving from the second quarter and we could make significant gains in the last two sectors with a good yield and rising prices," said Santhosh Kumar, ED, HML.

Raghavan said the buoyancy in the automobile sector towards the end of last year led to a rebound in the OE and replacement segments of the tyre industry. With the narrowing down of the difference between the international and Indian prices, the import was also restricted. The international price of RSS-3 (equivalent to RSS-4 grade in India) stood at Rs 168.55 per kg on May 5.

However, the second wave of COVID-19 that is sweeping the country now has severely hit consumption. "Our sales are mostly to North Indian cities where lockdown and restriction on movement have dried up demand. To make matters worse, we are experiencing supply constraints with the declaration of containment zones in several parts of Kerala," Santhosh Kumar said.

Though the second wave of COVID-19 has trimmed India's demand outlook it is anticipated to be offset by the expected improved demand from Europe and the US where economic activities are improving quickly, according to Jom Jacob, senior economist of The Association of Natural Rubber Producing Countries (ANRPC).

Despite the resumption of tapping by the second half of May in major producing countries, supply may be constrained by factors such as labour shortage in Thailand and Malaysia owing to COVID-related travel restrictions, fungal leaf diseases that affected a total extent of around 0.6 million hectares of rubber trees in Indonesia, Thailand, and Malaysia, and to a limited extent in Sri Lanka and India and low yield per tree due to the poor maintenance, Jacob pointed out

"But the supply anticipated in May and June will be higher than the average monthly supply of Feb-April due to seasonal factors," he said.

He expects the prices to make marginal gains in the short term helped by improving demand from Europe and the US, though the seasonal increase in supply and low demand from India can resist the gains. In the worst scenario, he expects the prices to move sideways at least.

"The progress in vaccination and good monsoon prediction may help the prices to remain firm despite a bleak outlook. However, it could meet resistance at Rs 175-180 per kg levels," said Anu Pai, research analyst at Geojit Commodities.

George Valy, president of the Indian Rubber Dealers Federation, also expects prices to remain firm. "Supply tightness as the expected output did not materialise after the second week of April could prevent the prices from falling from the current level despite downturn in demand," he said.

(PK Krishnakumar is a journalist based in Kochi)
PK Krishnakumar is a journalist based in Kochi.
first published: May 6, 2021 12:23 pm

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