Fall in rubber prices: Kerala's economy to lose Rs 1,600 cr

Going by conservative estimates, Kerala’s economy is set to lose around Rs 1,600 crore due to recent erosion in prices of natural rubber.

The estimates are based on a trading of 400,000 tonnes of the commodity during the next four months, and taking the average price at Rs 120 per kg.

The drop in prices will particularly affect the economy of hilly areas of the state. The three major factors influencing the state’s economy are overseas remittances, natural rubber cultivation and the tourism industry.

Besides, the state collects around Rs 300 crore annually by way of VAT on rubber-trading.

The recent high price tags of rubber had made the rubber-producing areas economically more vibrant as the average daily revenue of small and medium scale farmers spurted to Rs 500 crore to Rs 1,000 crore. This had a stimulating effect on other services and business sectors, including increase in car sales, buying of land property and apartments. The entire rubber-producing area of the state is now in a gloomy mood and real estate deals and other business activities have come to a halt.

The panic ridden natural rubber market today shed Rs 2 for a kg of the RSS-4 grade, quoting Rs 83, and is strongly poised for further southward movement. The local market is moving in tandem with the overseas markets, especially Bangkok and Tokyo, which are under a tight bear grip. The Bangkok market today quoted Rs 88 for the RSS-3 grade.

The global market for natural rubber is facing turbulence on reports of decreasing crude prices, poor growth estimates in the automobile sector and the general breakdown in major economies around the world.

In India, user industries, especially tyre-makers, are not in a hurry to enhance the inventory as they foresee further fall in prices. According to leading traders, the supply of rubber would increase further in the coming days due to spurt in seasonal tapping of rubber trees in all the rubber-producing districts of Kerala, thanks to a favourable climatic condition this year.

“Rubber will be available in plenty in the coming months. So we are not in a hurry to procure more rubber,” said an officer of the purchase department of a tyre company.

A leading stockist told Business Standard that major companies had instructed their officials to slow down the purchase.

The increase in inflow will aggravate the crisis further and market sources expect a further shedding of price by Rs 3-5 per kg in the next couple of days.