Rubber seen down on import duty cut talk.

MUMBAI: Rubber prices are likely to extend losses this week on view the government will cut the tax on imports while local supplies are expected to rise due to favourable weather, dealers said.

"Prices are in a corrective mode. Market is assuming government will allow import at lower tax," George Valy, president of The Indian Rubber Dealers Federation, said.

India currently charges 20 percent tax on natural rubber imports and there is speculation the government might allow imports of 100,000 tonnes rubber with 7.5 percent import duty.

The benchmark September contract on the National Multi-Commodity Exchange (NMCE) provisionally closed 1.2 percent higher at 17,030 rupees per 100 kg on Monday.

The contract lost 3.6 percent last week, while spot price in Kottayam, Kerala, fell to 17,400 rupees, the lowest level in nearly two months.

A boom in the auto industry has bouyed demand for tyres, pushing up buying in the rubber market by tyre-makers. Tyre firms are also pressing the government to make imports cheaper to reduce their input costs.

India is likely to import 110,000 tonnes of natural rubber in 2010/11, higher than the Rubber Board's April estimate of 70,000 tonnes, as record-high local prices forced tyre makers to source more raw material from abroad, a Rubber Board official told Reuters earlier this month.

"Weather has improved in Kerala. Tapping is rising in dry weather," Valy said.

Tapping usually slows down during rainy season in the southern state of Kerala, the country's biggest producer.

India's rubber output rose 14.4 percent to 57,500 tonnes in July as farmers increased tapping due to record high prices, a senior Rubber Board official said.

The Rubber Board estimates output in the south Asian country will rise 7.5 percent to 893,000 tonnes in 2010/11 and consumption by 5 percent to 978,000 tonnes.

Tokyo rubber futures slipped lower on Monday on a strengthening yen and sluggish oil prices, but dealers said prices were unlikely to drop much further after finishing above the 285 yen level.

Source : economictimes.indiatimes.com