'Futures speculation distorting rubber prices'

Import of natural rubber (NR) is set to increase, as speculation in the futures market has severely impacted the availability in physical markets, stated the Automotive Tyre Manufacturers Association (Atma) and the All India Rubber Industries Association (AIRIA) today.

“A binge of heavy speculation has thrown the entire domestic rubber trade out of gear. Expiry pressures of the just expired September contract have sent prices spiralling up. On September 14, the September contract zoomed up to the four per cent intra-day circuit limit, to close at Rs 193/kg. The trend was not in sync with the fundamentals, as the physical price as per the Rubber Board was Rs 185. On September 15, when a strike was observed in Kerala and physical trade was closed, the September contract rose further by four per cent and the trade touched Rs 201. Ironically, the traded volume on September 15 was just 48 tonnes,” the two industry associations have stated in a communication to the futures market regulator, the Forward Markets Commission. They have noted the international price when all this took place was just Rs 170 per kg.

According to the user-industry, such unnatural and illogical trends in the futures trade heavily hampers the physical trade, resulting in wrong signals to all stakeholders, including growers, with those befitting being only speculators and the exchange operators.

Typically, under such circumstances, farmers and traders tend to hold stocks and consumers have no option but to contract for imports, as availability thins out and the landed price difference is in the range of Rs 25-30 per kg. Since such speculative trends do not last, the situation could get worse when heavy imports land up in peak production months, they’ve added.

According to Vinod Simon, president of AIRIA, the current speculation in domestic futures is giving least consideration to the demand-supply fundamentals. “Why,” he asked, “should domestic NR prices hold significantly higher than international prices when we are approaching the peak production months and carrying more than 250,000 tonnes as suggested by the Rubber Board, and also in light of the fact that there is already a spurt in imports this year of 21 per cent?”

From the Rubber Board data, NR imports in April-August was 95,047 tonnes against 78,423 tonnes in the same period last year.

In its communication, the user-industries have asked for curbing the volatility in futures prices by reducing the intra-day price fluctuation limit from the current four per cent to one per cent.