KOCHI: Call it an act of providence or simply market dynamics. Beleaguered rubber farmers in Kerala may find relief as prices are poised to surge in the first quarter of the calendar year 2024 due to constrained global supply and reduced carryover stock. Rubber prices have been a contentious issue in the high ranges of the state, and with the Church often leveraging rubber as a bargaining chip, the rally in prices could potentially dampen its influence.
Jom Jacob, a former senior economist with the Association of Natural Rubber Producing Countries (ANRPC) and currently the chief analyst of WhatNext Rubber Media International, said rubber prices could potentially rebound as global supply tightens by the end of the first quarter of 2024. And as this supply constraint intensifies in the subsequent months (April to August), prices may gain momentum in the second and third quarters.
However, the potential spike in natural rubber prices will be tempered by the slowdown in consumption in the United States and Europe.
“Total world production in 2023 is expected to reach 14.34 million tonnes, reflecting a 1.9% decrease from the previous year. A significant decline in production in Thailand, Indonesia, and Malaysia, coupled with marginal decreases in Vietnam, China, and India, could cut approximately 0.7 million tonnes from the global output anticipated for 2023,” Jacob told TNIE.
To bridge the shortage expected in the first half of 2024, another possibility is to use the stock accumulated over several years before 2023, Jacob said. “But world supply was in deficit both in 2021 and 2022. Moreover, the larger part of the prior years’ accumulated stock should have been absorbed to meet the deficit in the first half of 2023,” he added.
Jacob estimates supply in 2024 to be at 15.05 million tonnes. And, with demand expected at 15.52 million tonnes, this could mean a deficit of around 0.47 million tonnes, he said.
Natural rubber prices are likely to strengthen as the gap between production and consumption in the country is anticipated to widen, said M Vasanthagesan, executive director of the Rubber Board.
India, the world’s second-largest consumer of natural rubber, annually imports approximately five lakh tonnes to meet its requirements. The production-consumption gap in India is observed to be expanding, with consumption reaching 13,50,000 tonnes and production at 8,50,000 tonnes during the 2022-23 period. Import figures stood at 5,28,677 tonnes, according to data from the state-run Rubber Board.
Jacob highlights that in the scenario of exceptionally strong demand, prices can maintain momentum even during the fourth quarter of 2024. “The demand from the US and Europe is expected to regain strength in the last quarter of 2024 as the respective central banks initiate interest rate cuts and economic activity gains momentum. China, heavily reliant on the US and European markets for exports, can also benefit from the economic recovery in the West.
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The anticipated revival in demand may lead to aggressive buying of natural rubber by tyre companies in the fourth quarter. The impending seasonal decline in supply could further prompt active buying. Consequently, prices are likely to experience only marginal softening in the fourth quarter. In the event of exceptionally strong demand, prices can sustain their momentum even during this period,” he added.
George Valy, president of the Indian Rubber Dealers Association, remains cautious and notes that despite lower-than-expected production in Kerala, the introduction of new production in the northeastern states would have a moderating effect on prices.
“Production in Kerala faced disruptions from August due to unprecedented heavy rains. However, the prices would have risen if not for the production in the northeastern states. The existing prices are considered remunerative for them due to lower wages and costs compared to Kerala,” he added.
However, Valy emphasises that consumption is increasing in India, and any rally in international prices is likely to transmit to the domestic market as well.