Rubber processors bruised by rupee slide

According to industry data, demand for natural rubber is higher than production, and therefore prices remain tight bs photo

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The surge in natural rubber prices has prompted the rubber processing industry to increasingly depend on imported synthetic rubber. However, imports are not a convenient option for most small and medium-sized rubber processing units, as they are costly owing to the depreciation of the rupee.

Rubber prices in July last year were quoted at around Rs 18,000 per 100 kg, which has increased to around Rs 19,500 now, a hike of around 8-10 per cent. Prices had touched lows of Rs 15,700 per 100 kg in February this year.

While natural rubber prices started strengthening, many small rubber processors increased their dependence on synthetic rubber, which is imported in huge quantities from Germany, South Korea, Japan and Russia.

But lately, synthetic rubber imports have also become costlier as the rupee weakened to its lowest levels against the dollar. This further squeezed the margins of small rubber processors. Since January so far, the rupee has lost more than 14 per cent against the dollar.

"There is a shortage of natural rubber globally, therefore prices shot up. But synthetic rubber prices are driven by two factors - macro-economic issues, which affect demand, and the dollar value, which affects raw material cost. Currently, the rubber industry is facing difficulty in both these factors," said Yashodhar Kahate, former secretary of the Gujarat Rubber Manufacturers' Association (GRMA).

Small rubber processors mainly consume neoprene rubber, EPDM rubber (ethylene propylene diene monomer or M-class rubber), silicone rubber and styrene butadiene rubber. All these synthetic rubber types are imported due to either no production or very miniscule production.

Large industries, engaged in tyre manufacturing and other rubber applications, consume nitrile butadiene rubber (NBR) and poly butadiene rubber (PBR), which is supplied by Reliance Industries Ltd in India.

"Small units mainly supply rubber to industries such as kitchenware, footwear, accessories, the oil industry, pump industry or those requiring moulded plastic products. But because of high raw material cost, margins are excessively under pressure," said Rajesh Kothari, owner of Ashutosh Rubber Pvt Ltd and former vice-president of GRMA.

According to industry data, demand for natural rubber is higher than production, and therefore prices remain tight. In 2011-12 production was around 900,000 tonnes while consumption was around 970,000 tonnes.

It is evident from the widening gap between the demand and supply that synthetic rubber consumption in India has risen sharply. Industry estimates suggest that compared with growth in consumption of natural rubber of 10-12 per cent between 2007-08 and 2011-12, it was over 40 per cent for synthetic rubber. Consumption of synthetic rubber increased from 297,000 tonnes in 2007-08 to 423,000 tonnes in 2011-12.

Gujarat houses around 350 rubber manufacturers, traders and ancillary units spread in the Saurashtra region, and south and central Gujarat.