Here's why rubber prices are heading to the Rs 200/kg mark

Imports contracted by the beleaguered tyre industry to bridge the gap, however, were delayed by an acute container shortage and freight rate hikes.

Higher latex prices also compelled a large number of rubber growers to sell rubber in latex form instead of converting it into sheets. Centrifugal latex prices have shot up by Rs 10 to Rs 134.75 per kg in one month.

"Heavy rains came on top of import snags and high latex prices, that too, during the peak tapping season of November. To encourage the growers to bring out more rubber sheets, we have decided to give a subsidy of Rs 2 per kg with a cap of Rs 5,000 per grower from December 1 for three months. In the absence of sufficient rubber sheet production locally, imports are likely to go up in the coming months,’’ said Dr K N Raghavan, executive director of the Rubber Board.

Usually, rain guarding of rubber estates is done during the April-May period. This year it was hit by the resurgence of Covid-19 and the lockdown. The rain guards, installed to withstand the South West monsoon, were found ineffective in the torrential rains in October and November, Raghavan said. Increasing leaf fall from rubber trees due to excess rains may trigger a decline in the yield, he added.

The rains have impaired the NR output in October and November, though official data is yet to come. According to the Automotive Tyre Manufacturers Association (ATMA), against average output of 75,000 tonnes each month, production is not expected to exceed 45,000-50,000 tonnes. On the other hand, consumption is anticipated to remain over 1 lakh tonnes in each of these months. The deficit will be a major concern for the tyre industry, which mops up nearly 75 percent of the country's NR output, ATMA Director General Rajiv Budhraja said.

Since the scarcity comes at a time when domestic production of commercial vehicles is looking up after a prolonged downturn, ATMA has stressed on the need for duty-free import of NR to the extent of the projected demand-supply gap of 4.4 lakh tonnes and removal of port restrictions to ensure uninterrupted supply of tyres and exports.

The duty-free import volumes can be reviewed every year, as a tariff rate quota (TRQ) quantity, in accordance with production and consumption estimates put up by the Rubber Board, Budhraja said.

But local dealers have strongly objected to such a move. "Duty-free imports and removal of port restrictions will sound the deathknell of rubber cultivation in Kerala, which accounts for over 80 percent of the NR supply in the country. Already the State is facing an acute shortage of tappers though it pays the highest wages in the country,’’ said Biju John, a rubber dealer based in Kottayam.

Industry outlook

The inclement weather has affected production in other Asian countries, too, and hence global supply is expected to remain tight in the coming months, according to The Association of Rubber Producing Countries (ANRPC).

According to an estimate by ANRPC in October, world production in 2021 is expected to be short of consumption by 192,000 tonnes. In view of the damage caused by the torrential rains and floods in Thailand, Indonesia, India, Malaysia and Sri Lanka, global production in 2021 will be lower than the estimate of 13.836 million tonnes against the projected consumption of 14.028 million tonnes reported at the end of October.

Consequently, the mismatch between global production and global consumption in 2021 will be much wider than 192,000 tonnes, according to a recent ANRPC report.

The outlook on demand is subject to the risks associated with the potential resurgence of Covid-19 during the winter. The short-term outlook on NR prices is also challenged by the potential strengthening of the dollar and likely absence of support from the crude oil market, the report said.