Rubber industry waves off 2010 with high prices

By Cheranka Mendis

The rubber industry bowed to 2010 with rising prices, increasing demand and low production.

The year, which has been a good year for traders with rubber being auctioned at high prices, closed with a record price for RSS Grade 1 rubber of Rs. 540 – the highest ever to be reached in this grade in the history of Sri Lankan rubber.

Colombo Rubber Traders’ Association (CRTA) Chairman M.S. Rahim speaking to Daily FT stated that the market had been strong in 2010 due to low production and high demand. However, the situation is not exclusive to Sri Lanka alone, but to the world as a whole, since world rubber prices also increased rapidly through the year.

Bad weather in the Asian region is the main reason for this, with production of major rubber trading countries such as Thailand, Indonesia, India and Sri Lanka being weathered down due to heavy rains, which continued at intervals throughout the year.

Demand for rubber is the highest in China and India, Rahim said, with the rise in the automobile industry in these countries. “The automobile industry is growing rapidly in these countries. More people are rich and want more cars. The demand for tyres is therefore high, due to which the demand for rubber has skyrocketed,” Rahim said.

Coupled with enormous demand was a drop in production in the second quarter of the year in June and July, he said. Prices have gone through the roof and not looked back from about September onwards.

However, Rahim said that there was a small dip in prices in September, with the clear weather that was experienced. “Due to the world shortage of rubber and over consumption, prices have been artificially increasing in 2010,” he noted.

In the coming year, Sri Lanka should increase production to meet the demand that has been created following months of bad weather and low plucking due to continuous holidays. “In 2010 production has been low compared to 2009,” Rahim said.

Quoting statistics available from the rubber auction, Rahim stated that in 2010, a total of 10.8 million kg of crepe rubber had been sold along with 4.03 million kg of scrap rubber and 2.9 million kg of skim rubber.

“Overall those in the rubber sector experienced a good year. Share prices of rubber holding companies and plantations have also increased greatly during the year. Prices of rubber have increased in large leaps with crepe rubber, a prime good for Sri Lanka, starting the year off with a Rs. 300 and ending with Rs. 575 at the last auction. Results in Q1 2011 will be similar, unless rainy weather continues, in which case production will plunge further, starting the year on a negative note,” Rahim said.

Talking about the last auction for 2010, Rahim stated that 149,125 kg of crepe rubber was auctioned along with 36,750 kg of scrap rubber, 10,500 kg of skim rubber (low grade) and 19,953 kg of RSS rubber.

RSS grade 1 – the best quality rubber in the RSS category – fetched Rs. 540, a record in Sri Lankan rubber auctions for the said grade. It broke the previous record of Rs. 525, which was marked in the previous auction.

Rahim stated all Sri Lankan rubber was auctioning at over Rs. 500 as at now except for scrap rubber, which goes at an average of Rs. 488. Scrap rubber is made out of left-out residue after tapping, which has been exposed to the elements. Tennis balls, shoe soles and hose pipes are made out of this kind of rubber.