Thanks to surplus NR production in near future, there can be a stagnant or slightly lower rubber market in 2012 if the economic downturn does not get resolved soon
Natural rubber is perhaps one of the few agro-based industrial raw materials which gave a decent return to the producers in 2011. Its price created a record in daily trade as the transactions ended at Rs.243 a kg for RSS 4 on April 5, 2011. The price came down later owing to the slow growth of the Indian economy which impacted the demand for rubber. Declines in rubber price in the futures market also influenced spot trades. But the market did not fall flat as demand for rubber did not fall in tandem in view of the robust growth in vehicle sales and the consequent enhanced demand for tyres and auto rubber components.
Record in annual average price
Throughout the year, monthly average of the daily price of NR remained above Rs.200 a kg, excepting for a slightly lower figure of Rs.195 for November. Striking an annual average of Rs. 216 for the grade in the year is another record for the NR market. Annual averages of the per kilogram price of block rubber ISNR 20 at Rs.177 and of latex 60% at Rs.205.5 reckoned in dry rubber terms, also were the highest ever.
Supply crunch was the main factor taking the price to that height. The market did not come down significantly as the rubber manufacturing industry in general was not maintaining any worthwhile stock through procurement from the home market or from the overseas market. Their hand-to-mouth existence did not allow them to keep off and let the market cool down while the price showed a tendency to surge. But the picture was different in regard to latex 60%.
While sheet rubber and block rubber had to be imported to supplement the domestic availability, latex 60% could meet the entire domestic demand. Some portion was left for export. During 2011, latex concentrate had a more or less stable market in India and its price, measured in annual average, came to Rs.223 a kg based on dry rubber content, while annual average of the world price was higher at Rs.230 a kg. Hence latex import was negligible.
NR import
Annual consumption of NR at 960,340 tonnes in India was higher than its annual production at 890,000 tonnes in 2011. The consumption moved ahead to make more tyres and auto rubber components as the vehicle production in the country made impressive growth. The gap of 70,340 tonnes between production and consumption was met by import. But the import did not confine to filling the gap; it rose to 111,899 tonnes from January to November. There was import in December as well, but the quantum involved is yet to be made public. Industry circles suggest that it may not go below the November figure of 15,069 tonnes. Including this, NR import during 2011 can be put at 127,000 tonnes.
NR export
At the same time limited quantum of NR was exported. During January-November, the export amounted to 43,442 tonnes. Export during December may be marginal as the world price ruled below the Indian price and the likely export figure during 2011 can be put at 45,000 tonnes. When this is deducted from the import of 127,000 tonnes, net addition to the indigenous NR supply in 2011 can be put at 82,000 tonnes. This is in excess of the gap of 70,340 tonnes already assessed. Even with a higher quantum of supply, the market has remained buoyant. Higher import during November and December despite the copious output was probably owing to the consumers’ concern for the crop falling by around 35 to 45% behind the monthly consumption during the lean production months of February and March.
Price factor and import
Production of NR at 108,000 tonnes in December exceeded its estimated consumption at 80,200 tonnes in the month. Generally, rubber price peaks in December in India as climate turns favourable.
Despite NR production moving ahead of consumption, sheet rubber RSS 4 firmed up at Rs.198 a kg on December 1, 2011 from Rs.195 on the previous day. A similar trend was visible in block rubber ISNR 20, which firmed up from Rs.176 to Rs.178 a kg during the period. Sheet rubber RSS 4 firmed up at Rs.204 a kg by the second week of December on peppered supply. It was noticed that many major rubber producers were holding on the processed crop to arrest a possible steep fall in price. But this was countered by major rubber consumers with punctuated purchases and RSS 4 came down in price to Rs. 198 a kg by the third week of December. Armed with enough stock of imported rubber, these manufacturers could reduce the domestic procurement to the bare minimum. Price factor abroad aided the import -- it was lower to the domestic price with attractive margin.
Price difference aids import
While the average price of RSS 4 in India was Rs.195 in November, it was only Rs.175 for RSS 3 in the international market. The difference of Rs.20 a kg was quite attractive for the Indian consumer to source rubber from abroad. The Indian currency’s record depreciation by 16.67% in 2011 against the dollar meant higher outgo in the Indian rupee to service imports; but it did not bother the importers as the price gain on buying rubber abroad gave attractive compensation.
Tyre companies were the major importers. The price difference enticed them to import. Average of the Indian price during December 2011 was Rs.200 a kg while average of the Bangkok price was Rs.179.2 for RSS 3. Imports over the gap in supply added up to the carryover stock in the country.
The carryover stock in the country moved up with the onset of peak production season. At the end of November 2011, it was 255,500 tonnes. The year-end stock would move up further to the extent of excess domestic production and the difference between import and export in December. This stock was enough to meet the domestic demand; but it did not prevent the industry from bringing more rubber from abroad. Import has of late become a tool to check rise in domestic price in addition to bridging the demand-supply gap.
While import was advantageous owing to the overseas market ruling low, export was not attractive as domestic market offered better realisation. This advantage did not accrue to the buyers from the general rubber goods (GRG) sector as there is hardly any export of finished goods. They depended entirely on market arrivals at home.
World scenario
Production of NR continued to be affected by rains and flash floods in the rubber-rich Southern region of Thailand. Rains were also rampant in Malaysia to interrupt tapping. Indonesia continued to be in the grip of dry winter which affected NR production. But these did not make significant downfall in overall output. While Thailand’s production in 2011 dropped to 3,375,000 tonnes from the original estimate of 3,430,000 tonnes, Indonesian output improved a bit from 2,955,000 tonnes to 2,964,000 tonnes as also the Malaysian output, from 975,000 tonnes to 1,021,000 tonnes.
However, deficient flow of rubber caused by Thailand’s shortfall and rise in oil price keeping up the price of synthetic rubber could not lift the Asian NR market. Spot prices in the Southeast Asian markets were limited to $ 3.5 a kg for dry rubber grades RSS 3/SMR 20 as 2011 came to a close. In the futures market of China and Tokyo, these grades moved up to $ 4 a kg for May 2012 delivery. This is about 33% fall from the high of $ 6 a kg hit in the first half of April 2011.
The International Rubber Study Group (IRSG) had projected in its January/March 2011 Rubber Industry Report that the world rubber consumption may reach 26.1 million tonnes in 2011, in which the share of natural rubber was put at 11.2 million tonnes. But in view of the fall in world demand, the rubber consumption has been scaled down to 25.7 million tonnes. The slowdown in the economic growth in China, India and the US coupled with the downturn in industrial production in Europe following the sovereign debt crisis has affected the world consumption of NR.
Slow recovery in the US economy lately reported and expectation of improved NR purchase by China ahead of the Chinese New Year have not made any significant change in the world NR market. Europe used to consume about one million tonnes of NR a year, but the consumption has come down in many Euro Zone countries as they have slipped into economic recession. The Euro Zone demand recession has made the NR market in Asia confine to US$ 3.5 a kg towards the end of 2011.
China’s rubber consumption has not lived up to the projection originally made. The China Rubber Industry Association had estimated NR demand to hit 2.89 million tonnes in 2011, but the monthly NR import data released from time to time do not fully support the estimate. During the eleven months from January to November 2011, the country imported a total of 1.9 million tonnes of NR. Domestic production in the year is projected at 630,000 tonnes. Excluding this, the country has to import 2.26 million tonnes to fulfil the demand estimate. That means China has to import 360,000 tonnes of NR in December. Their pace of purchase in the month was not in line with cornering such a quantum. Vehicle production and tyre exports have already softened in the country. The China Association of Automobile Manufacturers has scaled down the projected auto sales growth from 10% to 3% in 2011.
The softening NR demand the world over and the downfall in rubber price from the record high of US$ 6 a kg have created deep concerns among the growers of the rubber-rich Southeast Asia over a possible further fall in price. The International Tripartite Rubber Organization met early in December to evaluate the situation and arrived at the conclusion that the rubber market fundamentals have not changed in the last few months. Price fall in these months has been largely owing to the effect of peak production season. However, the meeting decided to conduct a feasibility study on setting up a regional physical market to create a new benchmark for the commodity in view of the widely fluctuating price trend.
The IRSG struck an optimistic note in December about demand of rubber in the coming year. The Group has stated that global demand for natural and synthetic rubbers may reach 27.2 million tonnes in 2012 against an estimated 25.7 million tonnes in 2011. It expects the demand for natural rubber to rise by 4.6% in 2012. However, rise in demand may elude a rise in the price of NR as its output may rise significantly in the New Year. The Association of Natural Rubber Producing Countries (ANRPC) has indicated that the output of major three world NR producers Thailand, Indonesia and Malaysia may approximate respectively to 3,375,000 tonnes, 2,964,000 tonnes and 1,021,000 tonnes in 2011. This may leave a significant carryover stock in view of the downfall in global consumption.
There was substantial rubber area expansion and replanting in these countries in the three years from 2004, to the extent of 658,600 hectares. Of this, as much as 66.41% -- 437,400 hectares -- was the share of Thailand. These three had new plantings and replantings to the extent of 152,900 hectares in 2004. In 2005, these moved up to 215,700 hectares and in 2006 to 290,000 hectares. The plantings of 2004 and 2005 have already started coming into production and the plantings of 2006 would start production from 2012. These can create surplus NR in the near future if the economic slowdown and Euro Zone problems do not get resolved in the immediate future. The prospect is that there can be a stagnant or slightly lower rubber market in 2012.
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