India`s Auto boom adds bounce to Rubber Rally.

India is headed for a second straight year of record natural rubber imports as domestic output fails to keep pace with auto-driven demand, underpinning prices already at record highs.

India could import as much as 175,000 tonnes in the year that began April 1, after shipments more than doubled last year to 170,679 tonnes when drought pared local output of the tyre-making raw material.

India`s auto boom adds bounce to rubber rally

Slower replacement of ageing plantations in Kerala state, which accounts for 90 percent of India's output, and reluctance of farmers to bring new areas under plantation are forcing the world's fourth-largest producer to boost imports.

Demand from China, which recently surpassed the United States as the world's biggest auto market, is also rising amid expectations that global rubber output will fall this year.

"Our imports are going up, they are supporting world prices," said George Valy, president of the Indian Rubber Dealers' Federation. "Our buying will add fuel to the price rally."

India is likely to produce 893,000 tonnes of natural rubber in 2010/11, up just 4.7 percent compared with 852,895 tonnes in 2006/07, according to figures from the Rubber Board of India.

During the same period consumption is likely to have grown by 19.2 percent to 978,000 tonnes. Output in 2009/10 fell to 831,400 tonnes from 864,500 tonnes a year earlier.

The Rubber Board had initially estimated imports at 70,000 tonnes for 2010/11, but in the first six months alone that figure was smashed, with shipments at 107,190 tonnes as higher local prices prompted tyre companies to boost overseas purchases.

India usually imports rubber from Thailand, Malaysia and Indonesia, the world's top three producers.

INDIA'S SUPPLY-DEMAND MISMATCH

"Demand-supply mismatch is there and it is rising," said Sajen Peter, chairman of the Rubber Board of India.

The gap between domestic natural rubber production and consumption in 2010/11 is likely to be around 175,000 tonnes and may grow to over 200,000 tonnes in the next year, Rajiv Budhraja, director-general of the New Delhi-based Automotive Tyre Manufacturers' Association, said.

That's primarily because despite record high prices, growers are not finding land to expand plantations, while demand has been rising continuously.

"Production will not rise unless area goes up. We have already maximized yields and raising them beyond the current level is very difficult," said Toms Joseph, an economist with the Rubber Board of India.

Rubber yield in India is estimated at 1,844 kg per hectare in 2010 compared with 935 kg in Indonesia, data from the Association of Natural Rubber Producing Countries (ANRPC), which groups the top producers, showed.

India's automobile production in the year ending March 2010 rose by a quarter to a record 14 million units, sharply higher compared to growth of nearly 3 percent in 2008/09.

Output growth in 2010/11 is likely to be even sharper than this year, going by numbers so far. In April to September, production rose by almost a third to 8.57 million units.

MRF Ltd., India's top tyre maker, Apollo Tyres Ltd., the second-biggest, and others are ramping up capacity to feed this surge in sales in Asia's third-largest economy.

"Every tyre company is expanding capacity," said Budhraja. "Demand is good from both original equipment and replacement segments."

INDIA, CHINA DEMAND TRIGGERS PRICE RALLY

Similarly, automakers in China shipped 19.3 percent more passenger cars to dealers in September from a year ago, official data showed, extending a rebound begun in August ahead of the peak auto sales season.

China is likely to import a record 1.6 million tonnes of natural rubber in 2010 compared with 1.591 million tonnes bought last year, the ANRPC estimates.

At the same time output in ANRPC countries in 2010 is likely to be lower than an earlier forecast of 9.47 million tonnes as heavy rains and ageing trees slash yields, Djoko Said Damardjati, secretary general of the association, said.

"Demand rises quickly and also goes down quickly. We can't increase production that quickly," Damardjati said.

Tyre grade rubber was sold at record prices near $4 a kg as tight supply in Thailand, Indonesia and Malaysia prompted consumers to scramble for the commodity.

Japan's largest tyre maker, Bridgestone Corp, bought some quantity of Thai RSS3 at $3.95 for nearby shipment, surpassing a record traded price of $3.50 in April, when offers for the Thai grade rose as high as $4.10.

In India, the spot price of the most traded RSS-4 rubber (ribbed smoked sheet) was 18,200 rupees per 100 kg on Monday, just below the record high of 18,600 rupees per 100 kg struck in the first week of August and up 67 percent in the past year.

INDIA EXPANSION

To feed India's demand, MRF, which has six plants, is setting up a seventh one in of Tamil Nadu, Apollo Tyres is spending an additional 3 billion rupees on a manufacturing unit in the same state, while JK Tyre & Industries has earmarked about 15 billion rupees to double its tyre capacity.

"Such kind of investment has never happened before," Budhraja said.

He estimates tyre companies will invest 100-120 billion rupees ($2.253-$2.270 billion) on expansion in the three years to 2011/12.

"See how the Indian economy is growing and you will get the answer about India's imports," Paul Sumade Lee, director of Thailand's Sri Trang Agro-Industry Pcl, the world's No. 1 natural rubber producer and exporter, said.

"The way the auto industry is growing here, we have to increase our presence in India. It is a major market for us."

Source : moneycontrol.com