Natural rubber market sags on Japan tsunami effect

Tyre companies to wait and watch for any further price increase.

The Japanese tsunami has hit the natural rubber mart, too. The local price of the benchmark grade, RSS-4, on Monday crashed to Rs 185 a kg on the spot market, from the closing rate of Rs 201 on Friday. A month before, the Kochi market had quoted Rs 240, the highest price ever recorded.

The market is expected to be bearish for the time being, as the earthquake is likely to substantially affect consumption in Japan.

While there was no panic selling in spot trading, the undertone of the market was heavily bearish. In Japan, futures prices on the Tokyo Commodity Exchange for the March contract had closed at 446 yen/kg on Friday. They opened on Monday at 430 yen/kg and slid to 405 yen/kg. There was panic selling, with new reports on the devastation.

The August contract of rubber on the Tokyo exchange was down 4.5 per cent or 17.9 yen, reaching 383.5 yen/kg.

Other markets were also affected. In Bangkok, spot rubber prices had closed at the equivalent of Rs 265 a kg on Friday, and dropped to Rs 223 a kg on Monday.

Indian investors rushed to square off their positions in rubber, bringing down the prices. There are worries over demand from China as well, after disappointing car sales there, according to analysts. They say further lows are expected in the short term.

In Japan, Honda and Nissan, among the largest manufacturers of automobiles, have halted operations. Toyota will keep its plants shut for the next two days and Isuzu till March 18.

Hino Motors would be closed until March 18, too. Nissan has reported damage to 2,300 new vehicles and minor damages to four of its factories. Also various reports about the damage to the atomic power stations caused serious apprehensions at the commodity markets.

Reports from China, the world’s largest consumer of rubber, is also disappointing. China’s voracious demand for cars eased in February, as surging gasoline prices, the end of government subsidies and a major holiday took a toll on the world’s biggest auto market.

The China Association of Automobile Manufacturers reported that total sales, including buses and trucks, fell 33 per cent in February from the month before, to 1.27 million vehicles. Sales of passenger cars dropped 37 per cent to 967,200 vehicles.

Heavy stocking by China was a major reason behind the recent surge in rubber prices. So, a setback to Chinese consumption will have repercussions on the NR market, world over.

Meanwhile, major tyre companies are not planning an immediate change in the pricing strategy as of now. A S Mehta, director (marketing), JK Tyres told Business Standard, “We cannot change the pricing strategy based on the price on one or two days”.

He added that tyre companies were in a very difficult situation when the rubber prices went up to Rs 240 a kg. Still , the increase was not completely passed on to the customers. So, companies are waiting to see how the market would react further and if the NR price decreases, everything will go well. But, tyre prices cannot be changed immediately on the basis of the price quoted for a very short period.