High speculation pushes up rubber prices

Heavy futures trading, the key reason.

Demand for rubber in the spot market will not wane as long as the futures prices remain at very high levels, offering good margins for traders

C.J. Punnathara

Kochi, March 24

Despite the country having adequate rubber stocks of 2.69 lakh tonnes (lt), prices continued their upward march, crossing the record level of Rs 155/kg earlier in the week.

Even as the prices continued to reign at all-time highs, what was surprising was that there was a fair amount of trading, Mr N. Radhakrishnan, former President of the Cochin Rubber Merchants Association, said.

Amongst other reasons, the current spell of price rise can be attributed to speculators, sources in the trade said.

They pointed out that at the end of January the country had rubber stocks of 2.87 lt. Of this, the growers were supposed to have been holding on to stocks of 1.26 lt, processors held 30,000 tonnes, dealers had 65,000 tonnes, the tyre industry 50,000 tonnes and other rubber using industry had 16,000 tonnes.

The total rubber stock in the country is reported to have dipped marginally to 2.69 lt in February.

Surprising rise

While the country still has adequate stocks, the sharp rise in prices is surprising.

Although the traders said that there could be a fair amount of exaggeration in the stock held by the farmers, they said the stock held by the processors, dealers, tyre and other rubber consuming industry would be far more authentic, as they had to file returns of the stock held by them, which the growers do not have to.

Even accounting for exaggeration of the rubber stocks held by the growers, the outstanding stocks should be well over two lakh tonnes – sufficient to meet the immediate needs of the country.

It is in this background that the role of speculators cannot be discounted, the rubber traders warned. They said the demand for rubber in the spot market will not wane as long as the futures prices remain at very high levels, offering good margins for the traders. As long as the price differentials remain pronounced, the futures trader would be induced to buy and stock in the spot market to undertake delivery trade in the futures markets, Mr Radhakrishnan said. This, he said, was the most likely reason why there was fair amount of demand at the current high levels.

But the trend seems to be reversing with futures prices closing weak on Monday The arrivals are also likely to pick up in the coming months as the winter season of low production and availability of the past couple of months is now more or less behind us, the sources added.

(thehindubusinessline.com)