Indian natural rubber prices may hit Rs 200/kg, the highest this decade

The current rally in Indian natural rubber (NR) prices may see it hit its highest mark in over a decade on the back of worsening shortage in the global market. As traders reckon that prices may reach Rs 200 per kg during April-May, tyre companies will feel the heat in the first quarter of FY24-25.

The escalation in the price of this raw material will bump up the cost of production for tyre manufacturers, who account for around 70 percent of the NR consumption, forcing them to take countermeasures. The price of RSS 4 — the type of rubber mostly used by the automobile industry — touched Rs 180 per kg on Friday, 15th March 2024.

“Increasing raw material prices will impact our cost of production. NR prices are soaring and synthetic rubber rates are also moving up, with the rise in crude oil prices. There is a limit up to which tyre companies can absorb losses. So, if the situation continues for a longer period, then we will have no option but to pass on the increased costs to the consumers,’’ said Ashish Pandey, Senior VP, Materials, J K Tyres.However, he feels the crisis may not last long and prices will ease. Lower production and the Red Sea imbroglio is prompting Western nations to buy more, which has added to the global price rally, he said. “As a result of the Red Sea problem, there is a two-week delay in Indian supplies to the West. They are building their inventory to prepare for a future shortage. This situation could be temporary and may change in a month or two,” Pandey added.

The Red Sea crisis has also hit tyre exports, making the Indian product uncompetitive in the global market in the face of increasing competition from China and other Asian countries in the last few months. Unlike India, China and south-east Asian countries don’t have to export via the Red Sea as they have easier access to Western countries, which are the major buyers, Pandey pointed out.

The global rates of sheet rubber RSS 3 have vaulted nearly 50 percent since January 2024, to Rs 225 per kg, as the output from top producers such as Thailand, Indonesia, and Vietnam has dwindled, their supply adversely hit by unfavourable weather conditions and fungal diseases.

The prices of an equivalent variety in India, RSS 4, which is used more by the automobile industry, have jumped 16 percent in the same period, and touched Rs 180 per kg. The fact that this is a lean season for rubber has also aided the rise in prices.

The fag end of 2021 saw NR prices soar to Rs 191 per kg, the highest so far this decade, fuelled by a shortage in the domestic market. International prices were Rs 40 per kg lower than Indian rates then. But the current surge is spurred by the sharp rise in international rates, which are a record Rs 45 per kg higher than Indian prices. The last time local rubber prices saw the Rs 200 per kg mark was 2011-12.

Experts say the global rubber price rally may not see a respite in the short term. “Prices are expected to gather momentum during March, April, and May. Production is projected to be considerably short of consumption, taking the deficit close to one million tonnes for the three months,” said Jom Jacob, Chief Analyst and Managing Partner of WhatNext Rubber Media International.

For CY 2024, he predicts that at a total world production of 14,566,000 tonnes, there will be a 4,22,000 tonne shortfall in supply, which is expected to pick up from August.

To capitalise on the situation, the Rubber Board has announced a Rs 5 per kg incentive for the export of sheet rubber between March 15 to June 30, 2024. The board said that though the international price of sheet rubber surpassed Indian prices in January 2024, exporters were not able to ship more because of lower prices quoted by countries, like Vietnam.On the global front, sheet rubber accounts for hardly 10 percent of the consumption. China, Malaysia, Sri Lanka, etc., are the major consumers of the various RSS grades. These countries have long-term contracts for the procurement of sheet rubber, which was hindering exports from India, the board said in a statement.Despite roadblocks, Indian rubber exports are on a high this year. It has doubled to over 850 tonnes in January vis-à-vis the same month in the previous year, boosting the overall exports during the year. The exports, which have remained under 4,000 tonnes per annum in the last two years, have seen a 40 percent rise in the 10-month period between April-January 2024, compared to the same period a year ago.But this move could further raise NR prices in the local market, as the exporters will be looking to buy even at current prices to ship the commodities. “The growers who did not use rain-guards and started tapping late last year still continue to do so one or two days a week. They are getting a good yield, but holding on to the stock in anticipation of higher prices. They will probably release it in April,” said George Valy, President, Indian Rubber Dealers Federation.

Ashok Khurana, President, Cochin Rubber Merchants Association, said that arrivals to the market have slackened and the shortage could persist till the onset of the southwest monsoon in June. “Since the global shortage is likely to continue for some more time, Indian rubber prices may remain high this year. In the short term, it could be closer to Rs 200 per kg, or even exceed it,” he said.

Indian rubber production has been marginally higher this year. Rubber Board data till the end of January, FY23-24, shows that production was up 1.9 percent from a year ago, at 7,39,000 tonnes.

Consumption has increased 5.4 percent, at 11,79,000 tonnes, in the same period. The growth in consumption, which ranged from 9 to 13 percent in the last two years, has slowed down in the current year, which is reflected in the import figures as well. Imports in the 10-month period are 10 percent lower, at 4,15,136 tonnes.

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