India's natural rubber output in 2017-18 is likely to jump 15 percent to its highest in four years at 750,000 tons as a spike in benchmark prices prompts farmers to start tapping trees they had abandoned earlier, industry officials told Reuters. (Reuters Photo/Kham)

Indian Farmers to Raise Rubber Tapping Amid Price Rally

BY :RAJENDRA JADHAV

FEBRUARY 01, 2017

Mumbai. India's natural rubber output in 2017-18 is likely to jump 15 percent to its highest in four years at 750,000 tons as a spike in benchmark prices prompts farmers to start tapping trees they had abandoned earlier, industry officials told Reuters.

Higher domestic production could reduce imports by the world's second-biggest consumer of the commodity and help arrest a rally that has lifted overseas prices to their highest in more than five years. The rubber rally could also trim margins for tire makers and force them to raise tire prices.

"The spike in rubber prices has renewed the interest of farmers in tapping," Rajiv Budhraja, director general of Automotive Tyre Manufacturers' Association (ATMA), told Reuters.

In the last two months, domestic prices have jumped 24 percent to 16,000 rupees ($235.85) per 100 kilogram, hitting a three-year peak on Monday, mainly due to supply disruptions in Thailand and led by surging Tokyo rubber futures.

"The current year's production target, which earlier we thought unlikely, will definitely be achieved," Budhraja said.

The state-run Rubber Board has set an output target of 654,000 tons for the current fiscal year ending on March 31, up 16.4 percent from the previous year.

Budhraja expects the output to rise another 100,000 tonnes in the following financial year.

Many rubber farmers in India had previously suspended tapping operations during a three-year slump that dragged local spot prices to 9,100 rupees per 100 kg in February 2016, the lowest level in nearly seven years.

Despite the now rising local output, Indian tire companies will still have to import as there is about a 40 percent gap between demand and domestic supply, said Raghupati Singhania, managing director of JK Tyre & Industries.

Over the last few years rubber prices in India were running at premiums to overseas prices, prompting tire makers like Apollo Tyres, JK Tyre & Industries, CEAT and MRF to raise imports.

Now local rubber is available at nearly 20 percent discounts to overseas supply, giving Indian tire makers an incentive to buy home-based production.

Still, with both local and global prices up sharply from six months ago, and with natural rubber making up around 40 percent of the cost of a tire, tire companies may have to look at raising their prices in coming months.

"Given the trend of rising costs, we would indeed be looking for the right opportunity to revise prices," said Singhania of JK Tyre & Industries.

India's rubber consumption is pegged at just over 1 million tonnes a year.

Reuters

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