Supply cut likely to raise natural rubber prices in Indian markets

Battered by a sustained decline, three of the world’s leading natural rubber producers – Thailand, Indonesia and Malaysia – have decided to trim supply to help escalate prices in the international markets.

In a meeting of ministers of these countries in Bangkok, the three nations decided to reduce their natural rubber supply to the world by up to 300,000 tonnes. The three nations comprise nearly 90 per cent of the natural rubber production, most of which gets exported to numerous countries, including to India.

The move by the trio is similar to what happens in crude oil production where supply is controlled by the Organization of the Petroleum and Exporting Countries (OPEC), an intergovernmental organization of 14 crude oil producing countries. 

The supply control is set to help raise prices of natural rubber, which will ultimately benefit Indian farmers but impact its consumers, including tyre manufacturers.

“The decision of the inter-ministerial group of Thailand, Indonesia and Malaysia will benefit all natural rubber producing countries, including India. But, it is yet to be seen as to how effective their monitoring system would be to take control of supply,” said Toms Joseph, joint director (economic affairs), the Rubber Board.

Data compiled by the Rubber Board showed India’s total import of natural rubber at 220,000 tonnes for the period between April and August 2018. During the financial year 2017-18, total natural rubber import was projected at 470,000 tonnes against 426,000 tonnes in the previous year, primarily from the three largest producers.

Meanwhile, the ministers of the three countries said, “The negative market sentiment and uncertainty in the global economy continued to influence the market, affecting the livelihoods of millions of smallholders in this region. The countries have formed an Agreed Export Tonnage Scheme, (AETS) under the International Tripartite Rubber Council (ITRC), and asked their respective ministers to implement this decision within two weeks.”

Smallholders (private small land holding farmers) contribute nearly 85 per cent of the global natural rubber. The trio has also come out with plans to boost domestic natural rubber consumption. Meanwhile, rubber prices in the international markets remained subdued.