Upbeat Auto Market Spurs Demand For Imported Natural Rubber

Natural rubber imports are likely to be much higher this year, as Indian tyre makers find that it is cheaper to source the commodity from the overseas market than to buy it from local suppliers.

The price of natural rubber in Bangkok dropped to Rs 120 a kg for RSS-4 grade today, while the local price is Rs 138. Tokyo Commodity exchange also reported lower tags as the prices for various contracts dropped by 3.7 -4.3 per cent.

Experts said that the fresh interest in the automobile market, especially in the sale of cars, will make tyre companies more 'vibrant' as demand in the OE segment is on the rise.

According to sources, a 5-7 per cent jump was reported in sales in the OE segment during April-June quarter of the current financial year. The Bangkok market had seen a sharp fall in prices in the first week of June and the priceof RSS-3 dropped to Rs 119 a kg. But later, it rose steadily and peaked to Rs 130 by the end of June.

The latest fall is because of reports on piling up of stocks in China, the world's largest consumer. The much higher local market also attracts more imports to the country, according to experts.

Combined imports during the April -June period of this fiscal increased 65 per cent to 96,392 tonnes compared with 58,345 tonnes during the same period last year. According to experts, the global rubber market is expected to remain in surplus for another three years, causing a glut of roughly 652,000 tonnes in 2014. The surplus will come down to 483,000 tonnes in 2015 and to 316,000 tonnes in 2016.

Additionally, China is expected to register a gross domestic product growth rate of 7.5 percent in 2014, which is the lowest since 2002. This slowdown means a slowdown in rubber demand as well, as China is the world's biggest consumer of the commodity.

The Wall Street Journal reported that Thailand, the world's largest natural rubber producer, would start unloading its rubber stockpile estimated at 220,000 tonnes, leading to further pressure on prices. The article also said that the stockpiles in major rubber consuming markets like China and Japan were at high levels. Hence the global market parameters indicate a lower price regime in the rubber mart for this year.

Apollo, MRF and Ceat are among the companies that are increasing imports as futures in Tokyo trade near a five-year low. Prices have slumped 63 per cent from a record high in 2011 and may extend losses as a global glut stretches into a fourth year.

Tyre makers are benefiting from cheaper imports that are helping them offset rising costs of raw materials made from crude oil. Earlier, the price of RSS-4 grade even touched Rs 245 a kg, and the price of tyres was increased sharply by 10-15 per cent gradually, but the companies are reluctant to reduce the prices even though rubber prices dropped 63 per cent.

According to sources the companies are yet not in a position to reduce prices, as the cost of other raw materials like synthetic rubber, Nylon tyre cords and carbon black increasedsharply. "We can only offset the losses that occured in the past. A mere drop in the price of rubber will not have much effect on the profitabllity of the companies," said a top tyre company official.

Most of the tyre makers prefer to import Standard Malaysian Rubber (SMR), which is almost on par with RSS-4 grade, but is much cheaper in the overseas markets. SMR quoted at just Rs 102 today, and the price once dropped even below the Rs 100 mark.

The auto industry, which represents 65 per cent of India's rubber demand, is poised for a recovery and margins of tyre companies will continue to expand. Annual car sales are headed for the first annual increase in three years, according to the Society of Indian Automobile Manufacturers (SIAM). Passenger vehicle sales, which include SUVs and vans, climbed 1.3 per cent in theApril-June quarter to 615,322 units, according to data from the society. This indicates a clear advantage to the tyre industry, pointing to more imports inthe current financial.

Source : business-standard.com