Rubber industry margins under stress on price rise.

Kolkata: With rubber prices in India on the rise, the industry is feeling the heat as margins are under pressure. While some of the manufacturers are trying to pass it on to the customers, some are even cancelling orders.

Abhisar Buildwell, a wholly owned subsidiary of Dharampal Satyapal, has already passed almost 70-75% of the price increase on to the customers. "Purchase prices cannot be controlled. So we had to pass it on and increase prices of our products, since our profitability was under pressure," said Vishnu B Sharma, vice-president (corporate projects) of the company.

“We had to get rubber from Kerala last year. With the present production scenario, we will have to buy from Kerala this year as well,” he added. DS Group procures almost 3,000 tonne of DRC from plantations in Tripura.

In fact, rubber prices have been increasing for the past couple of months. The benchmark April contract on the National Multi-Commodity Exchange (NMCE) touched Rs 15,935 per 100 kg on Monday. It was the highest level for near-month contracts since 2003.

The spot price of the RSS-4 (ribbed smoked sheet) rubber went up to a record high of Rs 15,450 per 100 kg, according to the data from the Rubber Board.

“The prices are so high that many of our member industries are facing closure,” said TK Mukherjee, president of the All India Rubber Industries Association. “While production has been almost stagnant or went down in the last couple of years, demand has been increasing at 10-12% per year. This gap between demand and supply is the main cause of rise in prices,” he said.

The AIRIA has almost 1,200 members, and most of them are failing to absorb price rise any further. Mukherjee, who is also the managing director of Phoenix Yule, said margins for his company have dropped by almost 10-15% in the last few months.

India's imports during the April-February (2009-10) period more than doubled to 157,980 tonne from 71,025 tonne for the corresponding period last year as there was increase in demand from tyre manufacturers.

In fact, most of the value-added rubber product manufacturing companies use 70% natural rubber. “We are finding it difficult to import as natural rubber attracts an import duty of Rs apart from a cess of Rs 1.50 per kg to be paid to the Rubber Board. For latex, the import duty is as high as 70%,” said Mukherjee.

Source : Financial Express