Rubber falls on excess supply, tepid demand Close.

KOCHI: Natural rubber prices crashed last week on concerns of excess supply and lower demand. While a drop in global prices has made imports attractive despite rupee depreciation, tyre companies are worried over the sluggish demand in the automobile sector.

International prices of sheet rubber RSS 3, used by tyre companies, fell by Rs 12 in seven days ended June 8 to Rs 190 per kg. The price of block rubber SMR 20 too crashed by over Rs 20 to Rs 154 per kg in the global market, leading to a huge difference of Rs 36 between sheet and block rubber, which may prompt Indian tyre makers to import bigger volumes of block rubber.

According to a leading trader, the landed cost of block rubber, including duties and taxes, will come to around Rs 180 per kg at the present currency rate. This is less than the RSS-4 variety of sheet rubber used by the tyre industry in India. The price of the RSS 4 variety touched Rs 188 per kg on Friday, dropping by Rs 7 during the week.

"The cost of domestic rubber, after adding transportation charges and taxes, will be around Rs 203 per kg at the current prices," said the trader. Unlike the overseas market, the difference between sheet and block rubber in India is just Rs 2 per kg. Block rubber costs Rs 186 per kg in India.

Though imports look attractive, tyre companies are not eager to enter into forward contracts, given the tepid demand situation. They don't foresee a major improvement in demand this quarter as the fundamentals are weak. "Original equipment manufacturers are cutting down production because of a weak demand," said Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association.

Rubber production may not drop when rains intensify in the coming months because planters have put in place a good rain guard system in May. The rise in yield, coupled with sluggish demand and imports, could pull down domestic prices further.

Source : economictimes.indiatimes.com