Proposed duty increase seen unlikely to stem rubber imports

By Rajendra Jadhav

MUMBAI (Reuters) - A proposal by the trade ministry to raise the import duty on natural rubber to 25 percent from 20 percent is unlikely to stem inflows of the tyre-making raw material as local prices remain some way above world prices, industry operators said.

In December the ministry wrote to the finance ministry seeking a change in the duty. No decision has been taken yet but Trade Minister Nirmala Sitharaman repeated the demand on Thursday in a debate in parliament on the plight of rubber farmers.

India is the world's fifth-biggest rubber producer but farmers have been switching to other crops as ample global supplies and falling prices squeeze their profit margins. Many farmers have also stopped replacing ageing trees as labour costs are high.

"The gap between local and international prices has widened in the past few months," said George Valy, president of the Indian Rubber Dealers' Federation. "Even after paying an additional 5 percent duty, imports would be cheaper than local supplies."

India, which buys mainly from Thailand, Malaysia, Indonesia and Vietnam, is forecast to import 425,000 tonnes this fiscal year and 500,000 tonnes in the next year starting April 1, he said.

The landed cost of imported rubber is 112 rupees ($2) per kg, compared with 130 rupees for local supplies. If the duty is raised, imports will still be cheaper at about 118 rupees.

"A higher import duty could increase our raw material costs but it won't stop imports," said a senior official with a leading tyre company. "We will import, as we will be saving nearly 10 percent (even if the duty is raised)."

Shares in tyre firms such as Apollo Tyres, JK Tyre & Industries, CEAT Ltd and MRF Ltd fell on Friday.

However, an official with the Automotive Tyre Manufacturers' Association said a duty of 25 percent would not make much difference to tyre makers or farmers, adding that India could not raise the duty beyond that level because of trade agreements with many of the Southeast Asian countries it buys rubber from.

"The pace of imports would continue as production is falling short of demand," he said.

India's natural rubber production in February fell 13.5 percent from a year earlier to 50,000 tonnes, while consumption rose nearly 4 percent to 82,500 tonnes. Imports jumped about 42 percent to 28,806 tonnes.

($1 = 62.8000 rupees)

(Writing by Krishna N. Das; Editing by Alan Raybould)