Demand and supply problems keep rubber prices steady in short term

Rubber tree and bowl filled with latex (Source: ShutterStock)

Natural rubber prices have remained firm in India because of supply and demand disruptions caused by lower output in Kerala, the country’s largest producer of the commodity, a drop in automobile production that stemmed from a shortage of semiconductor chips and higher demand for latex gloves in the aftermath of the COVID-19 pandemic.

Typically, the peak rubber tapping season in Kerala extends from September to January. But heavy rains early in September and October have prevented Kerala growers from maximising output.

“If tapping is not done at regular intervals, the yield declines. The growers are not able to tap (rubber) even once in four days. If this continues, then the yield could drop by 50 percent,” said GeorgeValy, president of the Indian Rubber Dealers Federation.

Untimely rains in Kerala conspired with a decline in automobile production, caused by a shortage of chips that resulted in lower demand for rubber used in the manufacturing of tyres.

In Kerala, many growers are selling rubber as latex instead of taking the trouble of converting it into sheets for industry. Demand for latex gloves has increased after the pandemic.

Latex prices have remained around Rs 120 per kg for some time. The RSS-4 variety rubber that is used by the automobile industry dropped from a high of Rs 180 per kg on September 1 to Rs 169 by the last week of the month and remained steady after that. RSS stands for Ribbed Smoked Sheet.

“We have rain prediction for next week too. Lack of sufficient quantity of rubber is holding the price compared with the international situation. We hope to get better output in next two months. The overall rubber production may not show much improvement from the figure last year let alone touch the level several years ago,” said Santhosh Kumar, executive director of Harrisons Malayalam Ltd.

Higher natural rubber output in the next few months may put pressure on domestic prices, but Valy said demand recovery would limit any drop.

Output 

Natural rubber production in the 2021 financial year had shown just a marginal improvement from the previous year at 715,000 tonnes. Since 2013, when the output was over 900,000 tonnes, production has remained in the range of 600,000-700,000 tonnes.

The international price of an equivalent variety of RSS-4 is Rs 40 per kg below the Indian prices. The block rubber that is largely imported by Indian tyre makers is cheaper by Rs 45 per kg.

The Association of Natural Rubber Producing Countries (ANRPC) has attributed a fall in the global rubber price to a downturn in industrial production in China resulting from a coal shortage, power supply problems and the debt crisis of real estate company Evergrande

Low international prices and inadequate supply from the domestic market have prompted the tyre industry to book more imports

But the chip shortage and availability of sufficient shipping containers have upset calculations of the industry.

Headwinds 

“Imports are erratic. Passenger car OE (original equipment) segment is facing a major headwind from the chip shortage. All the top selling models are facing the heat. But we expect things to improve in the last quarter of FY22,’’ said Rajiv Budhraja, director general of the Automotive Tyre Manufacturers’ Association (ATMA).

“People planning to upgrade have decided to wait as the availability of new cars is less in the market,”  he said, adding that demand in the tyre replacement segment of the market is healthy.

Budhraja reckoned that imports should be around 500,000 tonnes this year to bridge the gap between supply and demand.

Because natural rubber production has remained stagnant over the past few years, imports are dependent on consumption, which touched a peak of 1.21 million tonnes in 2018-19. Natural rubber imports that year hit a new high of 582,000 tonnes. In the financial year 2021, with consumption falling by about 10% from that level, imports fell to 410,000 tonnes.

Global natural rubber supply is expected to improve in October and November with the easing of Covid-19 restrictions in many countries, but a revival of demand will hinge on how soon China will solve its power shortage problems, apart from other factors like a strengthening dollar and rising crude oil prices, according to ANRPC.