Global rubber prices nosedive over glut scare

Huge gap between demand and supply mainly contributing to rubber prices going down

Serious concerns are being raised over prices on the natural rubber market, as a glut is expected this year too, owing to weak demand from China and other major consuming nations. This has triggered scare in the local market, resulting in prices for the benchmark grade RSS-4 going down to Rs 145 a kg on Tuesday.

However, Indian counters still remained in the upper level compared to the global markets. Bangkok market on Tuesday quoted Rs 119 a kg. This is for the first time since 2004, the price fell below the Rs 120-mark in Bangkok trading.

In last June, the Bangkok market had quoted Rs 168 a kg, and in June 2012, the price was Rs 183. Also, this is the fourth consecutive year the global market is facing oversupply.

According to Malaysian experts who had visited Kerala recently, the prices might go down further both in the local and international markets as there is a huge gap between demand and supply. This might definitely reflect on the price line of the commodity.

A leading trader told Business Standard that the prices in the local market might nosedive to below Rs 130 a kg, as there is a serious dearth in demand. Import is advantageous to the tyre companies, as rubber is cheaper in the overseas markets. They get crumb rubber at Rs 98, which is much cheaper than the graded sheet rubber.

Tokyo rubber futures dropped around three per cent and sank to their weakest level in more than five years on lingering concerns over high inventory and drop in demand in China.

Global oversupply has dragged on the benchmark contract, pushing down nearly 30 per cent so far this year at TOCOM. The global market is also worried about the high stocks in China,Thailand and Vietnam. Although rubber inventory in China has dropped in recent weeks to below 160,000 tonnes, stocks in the bonded warehouses remain high at around 360,000 tonnes, according to dealers’ estimates.

In addition to the high stocks in China, the market is also under pressure from Thailand’s plan to sell 200,000 tonnes of state rubber stocks, although apolitical crisis in the world’s top producer was likely to delay the sale. There were no clear estimates for the inventory in Vietnam, but the country has overtaken Malaysia as the world’s third largest producer, raising the risk of a price war.

Global supply is forecast to exceed demand by 241,000 tonnes in 2014, a fourth straight year of glut, according to the International Rubber Study Group (IRSG). Meanwhile, the slump in natural rubber prices is spurring Southeast Asian farmers to turn to other crops. Output growth in top producer Thailand could halve this year, while in neighbouring Vietnam farmers have cut down trees and reduced tapping. Asia accounts for about 90 per cent of the world’s natural rubber output.

Rubber prices have sunk roughly 30 per cent this year and hit five-year lows on persistent worries about slower economic growth in the main consumer, China, and oversupply. Global supply is forecast to exceed demand by 241,000 tonnes in 2014 for a fourth year of glut, according to IRSG, which ruled out any near-term rebound in prices.