Natural rubber imports may hit a new peak this fiscal as consumption likely to jump 10%

Natural rubber imports may hit a new peak this fiscal as consumption likely to jump 10%

A widening gap between the production and consumption of natural rubber (NR) in India and depressed prices in the global market may push imports to a new peak in the current fiscal.

NR consumption has been growing at a faster pace than the production in the last few years and the country has resorted to more imports to bridge the gap. While the NR production was 839,000 tonne, consumption touched 13,50,000 tonne in 2022-23.

The year saw the output cross 800,000 tonne after a long gap, helped largely by a better yield from northeastern states. This resulted in imports declining by 3 percent to 530,000 tonne.

But this year the traders and rubber product manufacturers expect the consumption to cross 14,00,000 tonne while they reckon the production may remain around last year’s figure. Given such a situation, the imports are likely to touch 600,000 tonne.

“We expect consumption to go up by 10 per cent this year. The automobile sector is booming and the rubber industrial goods manufacturing sector is also doing well,’’ said Ramesh Kejriwal, president of All India Rubber Industries Association (AIRIA). In contrast, the latest reports predict a decline in NR demand globally this year.

He reckons that the consumption growth will be maintained at an 8-10 percent level in the coming years as well despite the lesser use of rubber in electric vehicles which are becoming dominant in the automobile industry.

“The lower consumption of NR in electric vehicles will be compensated by the increase in its use in other sectors,’’ he said.

In the quarter ended June 30, 2023, both production and consumption in India have shown only marginal growth. The production grew by 0.7 percent at 139,000 tonne while consumption growth was 0.8 percent year on year at 357,000 tonne , as per Rubber Board data. Usually, the growth picks up in the second half of the year.

Heavy rains in July disrupted rubber tapping in some places in Kerala, the largest rubber-producing state in the country. Though rubber production is considered to be normal, users have complained of tight supply in the market.

The price matrix

“The latex prices are higher than rubber sheet prices now and hence many rubber farmers are selling latex now as it is more profitable,” said George Valy, president of Indian Rubber Dealers Association.

Latex prices have stayed in the range of Rs 165-175 per kg while the RSS-4, the sheet rubber mostly used for industrial purposes, has hovered in the range of Rs 150-155 per kg in the last two months. Taking into account the sheet making charges, the farmer may get only Rs 140 per kg in the case of RSS-4, according to Valy.

Since international prices of block rubber or technically specified rubber (TSR), which has similar qualities of Indian sheet rubber, have remained between Rs 108-Rs 110 per kg in the last few months, the user industry, especially, the tyre makers has been capitalising on it, pointed out Valy.

“The block rubber can be imported duty-free under advance licence for product exports. Even after payment of 25 percent duty, it is cheaper than NR available in India,’’ he said.

As its block rubber is cheaper due to low production cost compared to other sources, Ivory Coast has become the preferred import destination for the Indian rubber industry.

According to Jom Jacob, chief analyst and managing partner, WhatNext Rubber Media International, in 2020 Ivory Coast became the largest supplier of TSR to India surpassing Indonesia, Vietnam, Malaysia and Thailand. Southeast Asian TSR processors seem to have shifted to a low-profit-margin strategy to manage the increasing challenge posed by Ivory Coast.

One of the factors that is currently keeping NR prices low the world over is the low-cost NR coming from Ivory Coast. NR suppliers in Southeast Asia are compelled to trim their profit margins to make TSR available at rates competitive with Ivorian TSR, he said.

Global prices under pressure

The global NR prices are expected to remain weak in 2023 as surplus production is anticipated, which, in turn, is expected to encourage NR imports to India. The Association of Natural Rubber Producing Countries (ANRPC) in its revised outlook early this year has projected NR output to grow 2.7 percent to 14.916 million tonne. It has forecast a contraction in demand by 0.4 percent to 14.912 million tonne.

WhatNext Rubber Media has projected excess production from September through December 2023. “The prices are set to drop as market players are likely to shift positions in anticipation of progressive accumulation of surplus for the subsequent four months,” Jom Jacob said.

Further, slow post-pandemic economic recovery by China, which accounts for 42 percent of the world demand of NR, the possibility of an interest rate hike, geopolitical concerns and trade frictions could play a role in keeping the sentiment down, he pointed out. However, a strong stimulus to boost demand by China, production shortfall due to El Nino impact and softening of interest rates in the US can alter the scenario, according to him.