Four factors that may weaken natural rubber prospects

There seems to be a weird correlation between climate and markets! Following a simmering summer, monsoons are finally here. And after a spell of heated activity, markets are cooling heels. But with global uncertainties looming, many fear a frost bite!

Yes, given the trends and data that we observe and analyse, natural rubber prices are expected to weaken in the coming months with a slew of factors playing out.

Given below are those four factors and how those factors will impact rubber prices in the coming months, especially in India:

Factor 1: Crude oil

With the global economy slowing down and OPEC mulling a production quota hike, crude oil prices would come down in the coming months. This would also bring down the prices of synthetic rubber which is often used as a substitute for natural rubber. Naturally, synthetic rubber would replace natural rubber in a limited way curbing the natural rubber demand.

Ultimate Result: Natural rubber prices would come down

Factor 2: Automobile demand

Of the 18 passenger vehicle manufacturers in India, 12 who account for 90% of sales, reported sales figures jumping by a paltry 8% in May, compared to 14% in April, said a report in bsmotoring.com. Buyers prefer to check spending even as inventories pile up.

Increased borrowing rates and surging fuel prices play the villainous role here. (Even if the fuel prices drop, chances are less that interest rates would drop immediately, as inflation is driven by multiple factors; further, oil marketing companies may possibly insist on maintaining enhanced fuel price levels to offset previous losses and boost margins.)

The companies reportedly sold 190,838 units in May as compared to 176,432 units in the same month of 2010.

Further, The Society of Indian Automobile Manufacturers (SIAM) has trimmed its annual growth forecast for passenger cars from 16-18 per cent to 14-16 per cent, which can again be revised on sluggish demand persisting.

Worse, with flat steel—a key component in automobiles-- manufacturers raising the prices on account of high input costs, automobile manufacturers may further raise the prices to avoid a squeeze on margins. This would possibly be a drag on the industry momentum.

Ultimate Result: Natural rubber demand and prices would come down.

Factor 3: India output

The nation projects a 9 lakh ton natural rubber output in 2011, a growth of 5.8% that lags behind Malaysia’s output by just 75000 tons, said a media report.

According to ANRPC data, India’s Q1 production of rubber in 2011 calendar year has grown by 5.6% while in the coming quarter, the rate could likely be to the tune of 7.2%.

In the period between January and April 2011, India’s natural rubber output stood at 2.67 lakh tons, a 5.7% growth rate over 2.53 lakh tons for 2010.

In April, India’s Rubber Board had projected domestic consumption to the tune of 9.77 lakh tons mainly on automobile demand. But with sluggish sales in the offing, it is highly unlikely that there would be such a huge demand. This means rubber inventories in India would climb.

Ultimate result: Natural rubber prices would come down.

Factor 4: Chinese demand

According to a Business Line report, natural rubber cconsumption in China is seen rising 8.6% to touch 3.5 million tons with Q1 growth pegged at 5.2%. The country is expected to import 2.8 million tons, including compounds that have high natural rubber content.

Globally, exports from all countries are projected to increase10.3% in 2011 to 7.7 million tons against 7.4 million tons in 2010.

But Chinese growth story has many parallels with India’s. There too the fiscal tightening is happening. There too inflation is a problem.

This does not bode well for natural rubber prospects in China as well.

As published in: http://www.commodityonline.com/news/Four-factors-that-may-weaken-natural-rubber-prospects-39633-3-1.html