Good supplies from middle of May likely to curb rally in rubber prices

During first quarter of 2010, rubber outperformed all leading commodities, including bullion as well equity. Rubber at the Kochi market rose from Rs 13,950 per 100 kg to above Rs 17,000 during the January – April period, offering almost 22% return within 3½ months while spot gold rose by 6.5% and the Sensex rose by 3% during same period. Such volatility was last witnessed during 1994-1998 when prices rose from almost Rs 2,500 per quintal to nearly Rs 6,000.

The rally in rubber prices is because of robust auto sector demand, growing economy of developing countries createing a huge gap between supply and demand and long dry spell at top three producing countries in the world.

Global rubber demand increased sharply since mid-2009, especially at China, while in the domestic market, boom in the auto sector created a scarcity. The automobile industry is the single biggest user of rubber, easily consuming about 70% of the world’s latex production. Continued decline in supply of rubber latex in global market pushed Indian rubber prices to a historical level. In the last 15-months, rubber prices at Kochi have more than doubled from around Rs 7,000 per quintal to Rs 17,000, offering almost 140% return in the last 15 months or more than 9% return per month.

Severe drought, the current wintering season as well as active replanting activities in most major producing countries have resulted in drop in production, while demand grew in India and China.

In India, sales of vehicles –– including cars, utility vehicles, trucks, buses, motorcycles and scooters – jumped to 12.3 million units in 2009-10, data from Siam showed.

Meanwhile, auto sales in China overtook that of the US in 2009 to become the world’s largest auto market. Apart from this, rubber prices were also supported by a weakening dollar, volatility in yen and increasing crude oil prices.

The dollar index rallied from 77.918 at beginning of the year to 82.714 on April 28 against a basket of six currencies, while crude oil prices also went up from $80 per barrel to $87 in the first week of April. Other factor which was helpful to rubber prices was the favourable weather in Thailand.

Tyre production in India touched 87.8 million units in the first eleven months of the 2009-10 financial year, a growth of 17% over the same period last year.

(financialexpress.com)