Natural rubber prices set to go northward
Rise in crude oil prices will turn synthetic rubber unattractive

Synthetic rubber’s loss can be gain for natural rubber. Heading north, crude prices have reached the highest levels since 2014 and are heading towards $80 per barrel. Thus, for tyre makers and other industries that use rubber as raw materials, the attractiveness of synthetic rubber is on the wane. This has helped in boosting prices of natural rubber.

Natural rubber has moved above Rs 120 per kg recently. Earlier in 2011, natural rubber prices in India had reached an all-time high of Rs 243 per kg. It was the time when the crude oil averaged above $100 per barrel.

Since then, natural rubber prices have been on a downward spiral, hitting a low of Rs 95 per kg in 2015. According to the Indian Rubber Institute (IRI), the demand for natural rubber picks up when crude oil prices rise and synthetic rubber rates go up.

Also, the demand from China and currency exchange rates play a crucial role in determining prices. China, the largest consumer of natural rubber, consumes 40 per cent of the total global production. Experts say a drop in the value of rupee against the dollar might also help domestic natural rubber prices to pick up as imports become less attractive. The Indian currency recently reached 15-month low at Rs 67 per dollar.

While in India natural rubber (RSS-4 variety) is being traded at Rs 122 per kg, globally it’s hovering around Rs 118 per kg. The global prices are expected to increase following the US withdrawal from the Iran nuclear deal, which is likely to push up crude prices further.

With prices of natural rubber in the global market staying lower than the Indian prices, imports have been on the rise. Also, the demand for natural rubber has been on the rise –consumption has crossed 1 million tones – over the last few years with fairly decent economic growth rate and higher economic activities.

 

The industry has urged the Centre to put some restrictions on imports to ensure steady domestic prices for the commodity. Bodies like the Indian Farmers Movement (Infam) have also been taking up issues like increasing cost of production leading to under-cultivation, manipulation of the rubber market by utility industries and lack of policies to sustain prices. Infam has also demanded that imported rubber be put under strict quality inspection, possibly under the supervision of the Rubber Board of India, to check plant diseases.

Experts also point to some other factors that which may push up NR prices. For instance, with the global GDP growing at 3.8 per cent, it is expected that the international demand for natural rubber would pick up further and raise prices. Also, efforts of the east Asian countries (Thailand, Indonesia and Malaysia) to limit exports (initiated earlier this year) can further boost the global prices.

ritwikmukherjee@mydigitalfc.com

Columnist: 
Ritwik Mukherjee