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Rubber prices are the lowest they have been in five years and domestic tyre manufacturers have undoubtedly profited from this dip. Natural rubber is the key ingredient in a tyre. Indian tyre companies’ stocks have gained with the falling numbers of the Tokyo Commodity Exchange rubber contract and consequently clocked strong margins. The glut is due to subdued demand from China, the world’s largest importer, and excessive supply. Tyre makers could profit from lower material costs as the domestic rubber prices in the last quarter of the FY12–13 were 7 percent lower.
India is the world’s fifth largest producer of natural rubber. George Valy, president of the Indian Rubber Dealers' Federation said, "Tyre companies are consistently importing natural rubber as it’s cheaper in the world market. Higher imports are putting pressure on local prices." A year-on-year comparison indicates an 80 percent increase in the import of rubber in April–May of 2013–2014, whereas India’s exports were a dismal 40 tonnes, a drop of 98 percent when compared with the same period in 2013–14. The figures showed a drop in the production of natural rubber as well.
Major producers of rubber such as Thailand, Indonesia and Malaysia have held on to their stocks in the hope of reviving the nose-diving prices. These major players are looking to offload their stockpiles before the season starts. A senior analyst with Geojit Comtrade, Hareesh V stated, “This development hit both international and Indian rubber prices. Both TOCOM and India prices were at 4,5 year lows. However, Thailand later rolled back its decision following which the prices made a slight recovery.” He added: “By mid-June prices may recover to Rs 150 ($2,50) levels and by July it can further move up to Rs 160–162 ($2,69) per kg. But lower demand from automotive and non-automotive sectors will cap the prices at that level. Further, the subdued international prices will force consumers to import rubber.” Even with the 20 percent tax on imported rubber, it is still 15 percent cheaper than what is being sold locally. The Kerala farmers are not willing to release their stocks until the prices go up. Yields have also fallen below expectations and these growers expect better output post monsoon. Farmers are under severe financial strain and many are switching to the cultivation of other crops. The secretary of the Association of Planters of Kerala, Ajith BK, said, “The present trend in imports suggests that, in this financial year 2014–15, the import may exceed the financial year 2013–14. In the month of May alone, the import is approximately 33% more than that in the same month of last fiscal.”
Analysts do not expect a rebound in prices any time soon. The commodity price line will reflect the disparity in demand and supply. With the tyre manufacturers being the primary consumers of rubber in India, they are likely to reap the benefits of the local and overseas price mismatch. Alex Mathews, Research Head, Geojit BNP Paribas Financial Services Ltd., spoke out saying, "Tyre companies are getting as much rubber as they need at a lower price. Their margin can rise by 10 to 15 percent if rubber prices stay at the current level." In early June, tyre stocks on the BSE rallied – Ceat India, MRF Ltd, Apollo Tyres, JK Tyre & Industries, and Dunlop India rose 4.5 percent, 2.2 percent, 2 percent, 2.1 percent, and 4.9 percent, respectively.