Rubber prices continue to soar, threaten to hit tyre market

India faces rising rubber prices, supply shortage, impacting tire industry.

Higher natural rubber (NR) prices triggered by surging demand, shrinking supply and import delays will hit the automobile and other rubber user sectors if the situation persists for some more time, according to industry spokespersons.

Indian NR prices rose 6 percent in the past one month. At the same time the international prices escalated 15 percent due to a slump in major rubber producing countries.

Indian rubber variety RSS-4, used more by the consuming industry, was selling at Rs 164 per kg last week. The market expects it to climb by another 10 percent in a couple of months if supply does not improve. With the rubber sector in India entering a lean season and delays in import due to the Red Sea crisis, a spurt in supply looks unlikely.

“The Red Sea crisis has affected the import of rubber, both synthetic and natural, and chemicals. The freight rates too have zoomed. Besides, there is a shortage of containers for tyre exports. If the situation continues for a few more weeks, then the current inventory will get depleted,” said Rajiv Budhraja, Director General of the Automotive Tyre Manufacturers’ Association (ATMA).

Apart from its purchases from the local market, India has been importing over 5 lakh tonnes NR annually in the last couple of years to meet its requirement

Tyre demand is quite healthy in most segments, Budhraja said. “Typically, the increased mobility during elections shores up the demand further. But the uncertainty in supply could play a spoilsport”.

Raw material imports are taking longer to reach India, forcing tyre makers to adjust their operations. “There is a 10-15 day variation now which has necessitated careful planning and scheduling of operations at a time when the demand is looking robust except in the farm segment. Since we are nearing the end of the fiscal year and with high interest rates, it is not feasible to keep a high inventory,’’ pointed out Ashish Pandey, Senior VP, Materials, JK Tyres.

During the eight months ended November 2023-24, rubber production in India showed a marginal increase over the same period in the previous year at 5,26,000 tonnes. Consumption has risen by about 6 per cent to 9,49,000 tonnes for the period.

The traders are worried about diminishing arrivals, as parts of Kerala, the largest rubber producer in the country, have reduced tapping with the onset of the lean season.

“Last year there were good arrivals in January and February. But this time supply is short while the demand is good. The tyre manufacturers are desperately seeking rubber from the domestic market because of the delay in imports. At this rate, we won’t be surprised if the RSS-4 prices reach Rs 180 per kg or more by April,’’ said Ashok Khurana, President of the Cochin Rubber Merchants Association.

The tapping has more or less stopped in Kottayam and nearby regions, which account for a major part of the rubber production in the state. ``The producers in Central Kerala who installed rain guards and started tapping from the monsoon season have stopped. But it is continuing in the Malabar region towards the north of the state as they started tapping later during the year,’’ said George Valy, President of the Indian Rubber Dealers Association.

The targeted NR production in 2023-24 is around 8,55,000 tonnes, about 2 percent more than in the previous year. But the consumption is predicted to grow at 5-6 percent to well over 1.4 million tonnes. In FY23, NR production was 8,39,000 tonnes while consumption touched 1.35 million tonnes.
Globally, the escalation in the NR prices is expected to continue in the short term.

"The current rally is driven by the major falls in production in Thailand and Indonesia. According to our forecast, an emerging global shortage will take NR prices further up in the coming months through August," said Jom Jacob, rubber expert and Managing Partner of WhatNext Rubber Media International.

There are reports of an abnormal drop in production in Thailand, the largest rubber producer, in 2023, considerably below the estimate made a month ago. The quantity exported from the country during the first 11 months (January-November 2023) showed an annualised 9.3 percent fall. Exports of NR from Indonesia fell 15.4 percent, year-over-year, during the first 11 months of this year, Jacob said.

While the global supply is becoming increasingly tight, demand prospects are improving, helped by further signs of a faster-than-expected US economic recovery and further policy measures in the pipeline to shore up economic growth in China.

A highly favourable supply-demand fundamentals can offset the negative influences of a strong dollar, weak currencies of major NR exporting countries, logistic disruptions arising from the crisis in the Red Sea, and a nearly muted sentiment prevailing in global equities. NR can also expect the support of a gaining crude oil market, according to Jacob.

The prices of global sheet rubber variety RSS-3 went past that of its equivalent grade RSS-4 in India in the second week of January, after lagging behind the Indian prices for almost a year.

But this may not concern the Indian tyre makers much as they have been importing cheaper technically specified rubber (TSR) or block rubber mostly. The price of block rubber in the international market is around Rs 128 per kg compared to Rs 178 per kg of the RSS-3 grade.

“Earlier India used to import TSR largely from Indonesia and other Southeast Asian NR producing countries. Over the past two years, Ivory Coast has become the preferred source for the Indian tyre industry for sourcing TSR,” Jacob said.