Riddhi Siddhi Bullions Ltd

*Rubber production in India increase 0.4% to 715,000 ton while consumption slumped by 4% to 1.09 million ton

*Global rubber consumption to increase by 7% in 2021, after declining 8.1% in 2020

Japanese rubber futures rose to a three-week high, buoyed by strong US data and an easing of fears that top buyer China will tighten monetary policy, putting them on track for a weekly gain of 3.5% last week. The Osaka Exchange rubber contract for November delivery was up at 260.4 yen ($2.4) per kg, after hitting the highest since May 7 of 260.9-yen last week. The rubber contract on the Shanghai futures exchange for September delivery was up at 13,850 yuan ($2,170) per ton. The front-month rubber contract on Singapore’s SICOM exchange for June delivery last traded at 170.1 US cents per kg.

The Association of Natural Rubber Producing Countries (ANRPC) was noted that the pandemic delaying economic activities has affected global natural rubber production. The report noted that world production of natural rubber has a capacity of 903,000 tons but demand is at 1.129 million tons in April this year. The price of futures and physical markets for natural rubber has been “relatively” volatile, it noted, which registered a “V” trend.

In India, the average monthly price of RSS-4 grade that goes into the making of tyres rose from Rs 126.83 per kg in July to Rs 158.42 in December 2020. The prices breached Rs 160 mark after a gap of several years. The sector received a further boost with the Kerala government raising the support price for small farmers by Rs 20 to Rs 170 per kg under the state incentive scheme. The RSS-4 grade price is ruling around Rs 172 now.

Higher prices have bolstered the natural rubber production in India in 2020-21 amid a rampaging COVID crisis that has severely crippled demand. The initial estimates of the Rubber Board indicate a marginal increase of about 0.4% to 715,000 ton from a year ago. This is at a time when the consumption has slumped by nearly 4% 1.09 million ton.

Rubber Board attributed the rise to three factors- a spike in the prices, higher installation of rain-guards in the plantations in Kerala (largest rubber producing state in India) and improved supply from rubber estates that remained untapped because of economic unviability.

The supply anticipated in May and June will be higher than the average monthly supply of Feb-April due to seasonal factors. Though the first quarter of 2020-21 was a washout, the global rubber prices picked up from July 2020 with increased offtake by China and disruption in tapping due to COVID-19 and fungal diseases.

The International Rubber Study Group (IRSG) expects global natural rubber consumption to increase by 7% in 2021, after declining 8.1% in 2020 because of the pandemic, secretary general Salvatore Pinizzotto said.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 1-6-2021

Samarth Mercantile

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