The Hindu : Kerala News : Fluctuation in rubber prices a cause for worry

Online edition of India's National Newspaper
Friday, Aug 13, 2004

Kerala

Kerala

Fluctuation in rubber prices a cause for worry

By George Jacob

KOTTAYAM, AUG. 12. The rubber market which took a southward plunge following the revocation of port restrictions on Tuesday went steady on Thursday. The RSS-4 variety remained steady at Rs.5,550 a quintal and RSS-5, Rs.5,350, the same as on Wednesday.

While ruling prices are a far cry from the all-time high it reached just a few weeks ago in July, when natural rubber (NR) prices shot up to over Rs.6,700 for the RSS-4 variety, the prevailing prices may not be a cause for heartburning for the farmer. However, what lies in store for him, given the nature of the indigenous rubber market where consuming industries never lose a chance to push down the prices, may be a cause for worry for all concerned.

Prediction comes true

When rubber prices started to show signs of upward mobility during the monsoon, it was taken as the natural seasonal market variation on account of drying up of the flow into the market. However, indigenous market prices continued to rise in spite of the downward trend in the international market throughout July and discerning market watchers soon noted a method in the madness. Many of them had warned that the bubble was to burst any moment as the prices were being jacked up by vested interests.

``Now that their mission is accomplished, prices are back,'' said one of them referring to the market phenomenon. According to him, the consuming industries were trying to push through two major demands and both have been met, thanks to the new dispensation at the Centre. The first was the discontinuation of the export subsidy and second, the disbandment of port restrictions. In fact, they have got more than what they had asked for. Along with the revocation of port restrictions, the Commerce Ministry has cancelled the stipulation on quality screening on imports by the Rubber Board.

Advantage industry

The present situation gives a lot of leverage for the manufacturing industry to push the rubber prices down, it is pointed out. On the price front, Indian rubber (RSS4 variety) would cost them around Rs.66 a kg when it reaches their factory at today's market rate as it will invite a 12.65 per cent purchase tax imposed by the State Government, plus a rubber cess of Rs.1.50 in addition to the transport cost put at Rs.2.5 a kg.

However, the imported rubber coming through the advance licence scheme would be free from the import duty of 20 per cent and the advantages on transportation cost, after the revocation of port restrictions, would be enormous. The cost of imported RSS-3 variety at Rs.58 a kg at their doorsteps would be around Rs.62 a kg. Given the fact that the Standard Indonesian Rubber is highly popular with Indian tyre manufacturers, whose price rules around Rs.53 a kg, the real advantage would be much more for the manufacturer — making the imports more attractive than the indigenous rubber.

It is pointed out that the decision to impose port restrictions was taken on the basis of the recommendations of the Rubber Board. The Board authorities have not made it clear whether they were consulted before rescinding such an order.

Crucial days ahead

The real threat to the Indian rubber farmer lies in the days ahead when the rubber sector enters the peak production season by the last weak of August or the first weak of September. With a glut in the market and armed with the new rules, the manufacturing sector is sure to do everything to push the prices down — that too in the only agriculture category which has shown a semblance of remunerative market situation in the recent times. A crash in the coming festival season would have its rumblings in the entire economy of the State, it is pointed out.

It is also pointed out that a decision on the part of the then Commerce Minister during the I.K. Gujral Ministry to allow the manufacturing sector to import 50,000 tonnes of rubber over and above the actual needs had a cascading effect and it took years for the indigenous rubber to come back to normality. Market-watchers believe that instead of allowing the industry to take short-term advantages, government policies should be aimed at fine-tuning the indigenous market with global price situation.

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