Rubber output could plunge 15% to lowest in nearly two decades

Production to fall as farmers have suspended tapping due to falling prices

Natural rubber production is likely to sink as much as 15% to its lowest in nearly two decades as farmers suspend tapping due to falling prices, rubber and tyre industry officials said.

Combined with growing local demand, that could force the world's second-biggest consumer of the commodity to increase shipments from key exporters such as Thailand, Vietnam and Indonesia.

Increased Indian imports would offer some relief to international markets, mired near seven-moth lows due to faltering demand from top consumer China.

"Production will fall since some farmers have suspended tapping," said Rajiv Budhraja, director-general of the Automotive Tyre Manufacturers Association (ATMA).

"This year we are expecting a 12- to 15% drop over last year's production."

The world's fifth-biggest rubber producer churned out 655,000 tonne in the 2014-15 crop year that ended on March 31. Output this year could drop to its lowest since 1996-97 at 557,000 tonne, estimated Budhraja.

"Tapping is not remunerative for farmers due to higher wages," said N Radhakrishnan, a dealer and former president of the Cochin Rubber Merchants Association.

Average Indian rubber prices quadrupled to Rs 208 ($3.26) per kg in the eight years to 2011-12, leading to a spike in wages. But while prices have nearly halved from that peak, wages have stayed high.

George Valy, president of the Indian Rubber Dealers' Federation added that production had also been hit by rain.

"Many farmers have not used rain guards this year since prices are not attractive," he said. Rain guards are typically pieces of plastic that surround a tree's trunk above the tapping panel.

A sharp drop in prices of synthetic rubber, which is largely derived from crude oil, has also depressed natural rubber prices, making tapping less attractive, said a senior official with a leading Indian tyre maker.

NEW MOTOR?

India's natural rubber consumption this year could rise 4% from last year's 1.02 million tonnes, pushing tyre makers to increase overseas purchases, Budhraja said.

The nation's tyre companies, including CEAT Ltd , JK Tyre and Industries , Apollo Tyres and MRF Ltd , have been boosted as a growing middle class looks to buy affordable vehicles.

India's natural rubber imports had risen five-fold in seven years to 414,606 tonne in 2014-15.

In the current year the imports could climb to 500,000 tonne, up nearly a fifth from last year, said Valy from the Indian Rubber Dealers' Federation.

"Tyre makers are increasing imports anticipating lower local supplies," he said.

($1 = 63.7850 rupees)