Synthetic demand blues for natural rubber growers

Industrial users turn to synthetic rubber as prices decline.

The recent change in rubber consumption pattern, with users' demand shifting from natural rubber (NR) to synthetic rubber (SR), has become a serious concern for the domestic natural rubber market that is already in a downturn.

Synthetic rubber has been seeing higher demand "� primarily from industrial consumers "� since its prices fell following the softening of crude oil.

According to market estimates, with a 2 per cent shift in demand in favour of synthetic rubber in the current financial year, this category now accounts for 25 per cent of total rubber intake, with natural rubber constituting the balance 75 per cent. Earlier, the ratio of usage between NR and SR was 77:23. Meanwhile, a highly volatile futures market knocked down natural rubber spot prices, due for a correction.

Both spot and futures prices fell below the Rs 100 a kg mark, landing a serious blow to the hopes of rubber growers of Kerala. Taking a cue from futures trading "� both domestic and international, the price of benchmark grade, RSS-4, declined to Rs 99 a kg here today.

If growers are to be believed, futures prices are currently under a tight control of a section of speculative traders. The former attributed the sharp fall in prices over the past couple of days to a planned move.

According to city traders, now confusion rules the rubber market and, hence, it has no definite direction. With the strong volatility in futures trading, most contracts today slipped below the Rs 100 mark in the opening session. Of course, market sources expected a correction with RSS-4 hitting a recent high of Rs 101, but not as early as the first week of February.

The market was expecting to see a drop in prices during the off-season, as there was a good stock with growers, which they had piled up in the hope of getting better prices during March-April.

Experts feel the stock could be so huge that the market may witness excessive supply, which will be tragic for farmers during the off-season. The Rubber Board too had warned of a difficult situation a few weeks ago, which seems to be coming true now.

Although all contracts on the National Multi-Commodity Exchange of India and the Multi Commodity Exchange of India have moved above the Rs 100 mark, the market does not seem confident of a northward movement, as global prices are on a downslide.

On the Tokyo Commodity Exchange, RSS-3 plunged to Rs 96.70 and Bangkok spot quoted Rs 98.90, which clearly shows a bearish trend.

At the beginning of the current financial year, Rubber Board had projected a total consumption of 8,41,000 tonne at a growth rate of 5 per cent. The board later re-estimated the consumption at 8,13,000 tonne expecting a 1.5 per cent growth only.

However, production, it said, might grow at 5 per cent contrary to the earlier projected rate of 3.5 per cent. Total production in 2006-07 is re-estimated at 8,43,000 tonne. The high average price has contributed to the rise in production.