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The Price Challenge

Kurian Abraham

Kurian Abraham

The rubber world is not going to be the same in the future, if the price fall of NR prolongs as predicted by experts. The indications are that NR prices will fall further and stay low till 2020.

After the strong recovery in 2010-2011 and the sustained growth that followed, the global tyre industry has now entered into yet another phase of slowdown. The European tyre market, in particular, has contracted substantially and is in a state of crisis. The US saw zero growth during 2012, while China saw its volumes increase and is projecting further increase in 2013. China now dominates the global tyre manufacturing sector, making more car and truck tyres than any other country. Yet, the scenario in most of the economies is that of slow growth.

It is against this backdrop, the prolonged price fall in NR has been predicted by renowned rubber market experts including Dr Hidde P Smit, former Secretary General of the International Rubber Study Group (IRSG), and Dr Prachaya Jumpasut of the UK-based Rubber Economist. According to Dr Smit, prices may nosedive even below Rs US$ 2 a kg in the coming years with no major recovery likely until the turn of the decade. They attribute the price fall to the increased volume of NR flowing into the market surpassing the actual demand, consequent on massive re-plantations and new plantations undertaken in major rubber producing countries since 2005.

Rubber price fall should have been heartening to the tyre industry in normal circumstances. But the continuing slump in the automobile sector, with its tell-tale impact on tyre demand, poses a different set of challenges for the industry. The most worrying factor is the prospect of millions of farmers quitting the scene for alternative opportunities in case of a prolonged price fall.

On the plantation front, unrest is spreading among rubber growers across all major producing countries. Whether it’s in Thailand, Ivory Cost or Sri Lanka, they are on a warpath for a remunerative price. If the price falls further, the situation will aggravate. Many will walk out of the industry which will hit future supplies.

The traders too are unhappy with violent fluctuations in the price. Reports from major NR producing countries say many are on the verge of going out of business. When the number of traders comes down, there is the possibility of rubber trade being monopolized by a few leading players and a further erosion in the farm gate price the growers are currently enjoying. A prolonged price fall will also impact replanting, new planting and new investments in the sector. Poor price will also scare away the already reluctant labour in the plantation sector.

Definitely, the global rubber industry is passing through a period of unprecedented challenges. It’s high time the various stakeholders and the respective governments joined hands together and chalked out effective strategies for a sustainable growth of the industry. This alone can salvage the crisis-torn industry from its long-lasting woes.

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