MUMBAI (Reuters): India’s natural rubber output in 2017/18 is likely to jump 15% to its highest in four years at 750,000 tonnes 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 tyre makers and force them to raise tyre 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% to 16,000 rupees ($235.85) per 100 kg, 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 tonnes for the current fiscal year ending on March 31, up 16.4% 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 tyre companies will still have to import as there is about a 40% gap between demand and domestic supply, said Raghupati Singhania, managing director of JK Tyre & Industries Ltd.
Over the last few years rubber prices in India were running at premiums to overseas prices, prompting tyre makers like Apollo Tyres Ltd., JK Tyre & Industries Ltd., CEAT Ltd. and MRF Ltd. to raise imports.
Now local rubber is available at nearly 20% discounts to overseas supply, giving Indian tyre 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% of the cost of a tyre, tyre 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.