MUMBAI – The rubber industry can't seem to catch a break. Barely weeks after the novel coronavirus outbreak wreaked havoc on prices, the downward spiral in crude oil prices could compound the sector's misery.
Rubber prices have fallen almost 6% since January when the outbreak of COVID-19 first started reaching alarming proportions. The prices could fall a further 5% in the coming weeks as sentiment for the commodity may take a beating.
In Kochi and Kottayam, the key markets in Kerala, natural rubber prices have declined by 6-7 rupees per kg in the past week. Today, the commodity was quoted at 129-130 rupees per kg.
Market participants said rubber was likely to be quoted at 124-126 rupees per kg in the next two-three weeks.
On the Indian Commodity Exchange, the most-active April contract was at 13,116 rupees per 100 kg.
On week, prices have declined by around 600 rupees after the Organization of the Petroleum Exporting Countries and Russia failed to agree on a deal to deepen production cuts beyond March. In the next two-three weeks, the rubber contract is seen at 12,000-13,000 rupees per 100 kg.
Prices of natural rubber take cues from those of crude oil as the latter is used to manufacture synthetic rubber.
"Tepid demand from the auto sector, global concern, and bearishness in crude oil are seen weighing on rubber prices," said Raju Varghese, owner of Kottayam-based Polachirayil Traders.
Crude oil prices in global markets slumped to an over four-year-low of $27.34 a bbl on Monday after Saudi Arabia, the world's largest exporter, said it would raise production to 13 mln barrels per day and slash cost for Asian and US customers.
Investment bank Goldman Sachs has said crude oil prices may fall to $20 a bbl due to expectation of higher output. The fall in crude oil prices has also been negative for the global and the domestic rubber market.
A slowdown in the country's automobile sector has also hit rubber prices. India's automobile sector accounts for 65% of the country's rubber consumption to manufacture tyres. Another 20% is used in the production of accessories for the auto sector.
The virus, which has now been categorized as a 'pandemic' by the World Health Organization, may critically hamper vehicle production in India as domestic automakers import about 10% of their raw materials from China, the Society of Indian Automobile Manufacturers said this week.
"With the current lockdown in China, supply for Bharat Stage-VI vehicles is likely to get impacted… manufacturers are exploring alternatives to fulfil their supply-chain demands but that would also take a substantial amount of time to reach stable production scale," SIAM President Rajan Wadhera said.
China and India are the top two rubber consumers in the world.
Global rubber markets are also likely to bear the brunt of a slowdown in the world economy and the automobile industry. Demand in China, one of the largest buyers, is dwindling following spread of the novel coronavirus in the country and the consequent lockdown of several cities, an official at the Association of Natural Rubber Producing Countries said.
The virus has already claimed at least 4,607 lives globally and infected 124,519 people in over 118 countries. The total number of coronavirus cases in India has risen to 73.
Rubber prices on the Tokyo Commodity Exchange have declined by 9-10 yen per kg in a week and traders expect it to fall by 4-5% in the coming weeks. Today, the most-active August contract on TOCOM was at 161.6 yen (about 115 rupees) per kg.
The only silver lining for prices right now is forecast of a fall in output this year. The International Tripartite Rubber Council, which represents Thailand, Indonesia and Malaysia, expects output to decline by 800,000 tn this year due to a fungal disease. These three countries are among the top producers of natural rubber in the world, accounting for around 70% of the global output.
Global demand for natural rubber is seen at 14.07 mln tn in 2020, up 2.7% on year, according to the Association of Natural Rubber Producing Countries.
The announcement of a package by the Japanese government to counter the economic impact of coronavirus is also seen preventing a sharp fall on the Japanese bourse, analysts said. The Japanese government has reportedly announced a $4.1-bln package to deal with the impact of coronavirus, and is set to provide $15 bln to businesses hit by the health crisis.
Source Cogencis