The rise in rubber prices continues in domestic and international markets. The price of RSS-4 Grade rubber is up 15% to Rs123 per kg from 1 September, although this is a period when prices begin to soften after the monsoon rains.

Graphics: Yogesh Kumar / Mint

According to data provided by the Rubber Board of India, the natural rubber output from January to September was 435,125 tonnes, nearly 10% lower than the year-ago period. On the other hand, consumption grew by 3% to touch 530,100 tonnes. This apart, around 136,000 tonnes of rubber were imported from April to September, which is around three times higher than a year ago.

The demand growth story is now a no-brainer what with robust Index of Industrial Production numbers, strong growth rate in automobile sales, which in turn spell better offtake in tyres. The tyre industry consumes about 50% of the country’s rubber production.

However, on the supply side, the drop is partly on account of erratic monsoons in the country, which hampered tapping of rubber. Says Rajiv Buddhiraja, director general, Automotive Tyre Manufacturers Association: “We have never witnessed this situation before, where there is a tightness both in supply and in prices."

The scenario is equally dire in international markets. RSS-4 grade prices have shot up from Rs103 per kg in September to around Rs123 a kg now. Speculation, too, is to blame. For example, rubber prices in the futures market increased in the last couple of days as plantations in four Thai provinces, which account for 20% of the country’s rubber, output were affected. Thailand is the largest global producer of rubber.

Forecasts now say output from this market could be 10% lower than the previous year. Adding to these woes is the high cost versus returns for small rubber growers in countries like Indonesia, which has forced a shift from rubber to palm oil cultivation, lowering output.

Another trigger is the rise in crude oil prices. There is a strong correlation between crude oil and rubber prices. The tyre industry, which is the largest consumer of rubber, uses a mix of synthetic rubber (styrene butadiene rubber, a petroleum product) and natural rubber. Commodity experts point out that when the price of synthetic rubber goes up, natural rubber prices, too, moves up in sympathy.

A respite is unlikely in the near term. Global production during the 12 month period from October 2008 to September 2009 was down 5%, compared with the year-ago period. Back home, the Rubber Board has projected an output of 835,000 tonnes of rubber for 2009, which will be 5.2% lower than the previous year.

That’s why the tyre industry is perhaps hoping for a duty reduction on imported rubber, which is as high as 20%. And there is speculation that other Asian countries like Thailand may ease exports. But the outlook for rubber users is not rosy.