Free port import adds to woes

IN FOCUS / RUBBER

The decision of the central commerce ministry to permit import of rubber through all ports instead of only through Kolkata and Vizag ports has led to fresh hammering of the prices of natural rubber [NR].

Coming on top of a torrid phase of collapsing prices, the step may lead to panic selling of NR in the Kerala market, industry watchers have warned.

However, this would bring great relief to rubber-consuming industries like tyres, belting and sheeting.

The price of RSS 4 grade rubber slumped to Rs 55-55.50 per kg from Tuesday's Rs 57. Other grades decreased to Rs 50-52/kg.

Rubber farmers of Kerala were in fear of a collapse in prices as imports could now flow in from any port.

The NDA government had banned import of rubber through Indian ports except Kolkata and Visakhapatanam in December 2001 for safeguarding the interests of rubber growers. Both ports were distant from consuming centres, adding a freight cost to all imported NR.

However, the commerce ministry has not taken any decision on export subsidy. This would affect export of NR, growers said.

In the past, the government had been paying a subsidy of Rs 3.50/kg for export of rubber. The export subsidy was discontinued from March 2004.

In all, 65,000 tonnes of NR was exported in the last fiscal. This was driven mainly by the subsidy.

During the current fiscal, exports have slumped as well as NR prices have slumped in the world market.

In the April-July 2004 period, total export was 3,400 tonne, while imports were around 23,000 tonnes.

At the current level of global prices, export without subsidy was not feasible.

Industry groups consuming rubber, particularly the tyre sector, have welcomed the decision of the commerce ministry. Import through different ports would allow consuming units to choose the most cost-competitive port in terms of transportation costs.

However, import through ports like Kochi was bound to raise hackles as import prices were comparable to prices in the local market. An oversupply situation would impact the local market and prices could fall further, according to experts here.

At present import prices were a shade above Indian prices. Producers, accustomed to protection over the years, feared that imports would erode the viability of their operations. They had grown familiar to a situation in which NR commanded prices in the home market that was above the global NR price.

Experts said a further fall in prices in the NR market was likely when the main production season commenced in October.

In Asian markets, Tokyo rubber futures dipped on Thursday, pressured by a firm yen and technical position adjustment in light trade due to the absence of many traders for the traditional Japanese summer holiday, Reuters reported.

The benchmark January 2005 contract on the Tokyo Commodity Exchange settled down 1.5 yen per kg at 142.4 yen from a high of 144.2. Other months fell by 1.1 yen to 2.2 yen.

The dollar was at 110.61/67 yen. Tyre producers used both natural rubber and synthetic rubber derived from petrochemical feedstock.

Interestingly, Thailand, Indonesia and Malaysia, which account for 62 per cent of the world's natural rubber output, agreed in March 2004 to support natural rubber prices and intervene in the market if prices dropped below $1.10 (approximately Rs 50.25p) per kg, FOB.

There has been a seasonal increase in rubber supplies in south-east Asia. In Thailand, the world's top producer and exporter of natural rubber, output normally peaked from June to September, putting pressure on market prices.

One negative factor was the lack of Chinese buying recently.