Rubber prices to bounce back on Rs 100 crore fund

Tags: Commodities

Govt had raise duty on rubber imports by 50% in December

Rubber prices to bounce back on Rs 100 crore fund
After falling to a four-year low level, nat­ural rubber pric­es are set to rebound this week once the official confirmation on Union government sanctioning a market stability fund (MSF) of Rs 100 crore for rubber growers is made.

The government officials had talks on Friday with the Rubber Board and the Kerala government officials in this regard. As per the proposal, the Union government will sanction Rs 100 crore, as MSF to the state government, which in turn will buy rubber from the growers whenever prices fall below Rs 150 per kg. However, official confirmation on this was not available.

Rubber growers, for some time now, have been clamouring for MSF and the demand became louder after prices touched four-year low of Rs 138.60 in the futures market last week. In the spot market too, prices touched a low of Rs 139.50 per kg.

“Rubber prices have been on a slide since mid-2013 when they were at Rs 195 per kg level,” said Hareesh V, senior analyst, Geojit Comtrade.

Meanwhile, international prices have also been falling and the price gap between the domestic and international prices was wide enough to make imports profitable.

From a peak level of 535.7 yen a kg in 2011, TOCOM rubber futures have fallen to a low of 205.6 yen a kg in 2012 and were trading around 226 yen last week. The Thailand future prices too, have declined from a high of $198.85 baht per kg in 2011 to 72.95 baht.

Production has been on the higher side in most of the rubber producing countries against the subdued consumption from the automobile industry. Thailand has projected production to increase in 2014 by four per cent or four million tonnes.

With the recent price fall, the gap between domestic and international prices has, however, narrowed down to Rs 10. In 2012 it had gone above Rs 35 a kg, encouraging imports by tyre manufacturers. Between April and October rubber imports were up by 64 per cent against the same period last year.

Meanwhile, the government had increased the duty on rubber imports by 50 per cent in December. Rubber product manufacturers had alleged ‘political motive’ behind worsening the inverted duty structure prevailing in the rubber trade with the hike.

The new duty structure and the narrowing of international and domestic price gap have not started supporting rubber prices. Domestic buying by manufacturers is still sluggish, as the import consignments are coming in.

“The import orders given by tyre manufacturers are being processed and it will take another two to three months to fulfill the orders,” said Hareesh. Further, there were certain quality issues related to Indian rubber, which has made manufacturers reluctant to purchase from the domestic market.

However, prices might bounce back to Rs 150 levels, once the official confirmation of MSF is out. Prices may stay between Rs 150 and Rs 165 levels and further upside is capped due to the weak fundamentals, he said.

sangeethag@mydigitalfc.com

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