Bears rule natural rubber counter.

Despite disruption in tapping due to the monsoons, natural rubber prices are at a four-year low level. Bearish sentiments will continue to rule in the rubber counter as imports make up for the shortage in the domestic market.

In the first week of August, RSS-4 prices in the Kottayam market were trading at Rs 135 per kg, the lowest since 2010. In the futures market too, prices were at Rs 130-134 levels.

“Usually rubber prices see some upside during the monsoon months when the tapping is disrupted and there is supply shortage. Last July, prices had seen the recent peak level of Rs 198 per kg. Prices are almost 30 per cent down from their year-ago levels,” said Hareesh V, senior analyst, Geojit Comtrade.

Prices have been falling since last July. But Indian natural rubber prices are still at a premium compared with international rates. In Bangkok, rubber is available at prices equivalent to Rs 118 per kg.

Making the most of this price difference, tyre manufacturers are importing rubber from Thailand and Malaysia. Between April and July, imports were 48 per cent up to 133,789 tonnes, against 90,580 tonnes in the same period last year. Consumption has been steadily growing at 2.9 per cent. The production was up 15.3 per cent till July. Exports were down 92 per cent between April and July against the same period last year due to higher premium of Indian rubber.

In the international market, however, there are no triggers that can support any upside in rubber prices. Production is up in both Thailand and Malaysia and their stock levels too are on the higher side.

On the other hand, the offtake by major rubber-consuming markets has not been encouraging. Reports indicate that China has enough stocks to meet its consumption. In Europe, Italy’s economy has fallen into negative territory and Germany’s factory output data looks weak. At this point of time, only the US market holds some promise, said Hareesh.

Prices in the international market have been trading in a tight range and they are expected to remain within that range. Concerns about El Nino affecting supply no longer exist.

Rubber also has not received any support from crude prices. Crude prices usually provide rubber a direction as petroleum is a raw material for synthetic rubber. But crude prices too have been range-bound for some time now.

Among the rubber producers, production may take a hit in India alone due to the monsoons. Incessant rains have necessitated the stoppage of tapping in the rubber- growing areas of Kerala. High labour charges for tappers and additional spend on rain-guards make production non-viable at the current price levels. Growers are also not holding on to stocks in any expectation of better prices.

“As long as tyre manufacturers are importing rubber from the overseas market, prices will remain bearish. In the near term, prices can fall to Rs 129 level and a further fall to Rs 120 per kg cannot be dismissed in the next couple of months after the rains stop and tapping resumes,” said Hareesh.

Source : mydigitalfc.com