Date:20/01/2005 URL: http://www.thehindubusinessline.com/2005/01/20/stories/2005012001551200.htm

Back Why tyre firms are not keen on futures

Our Bureau

Kochi , Jan. 19

TYRE companies, the largest consumers of natural rubber in the country, have not yet been active in the futures trading.

Their absence is often blamed as one of the main reasons why the futures trading has not really taken off for rubber, though India is the fourth largest producer of the commodity in the world.

However, tyre manufacturers marshal a number of reasons why they are keeping away from the futures market. According to the Automotive Tyre Manufacturers Association (ATMA), these are some of the reasons for tyre makers' non-participation in the futures trading:

Futures trading cannot help in any manner inventory management of raw materials including natural rubber, which is the primary job of material management personnel of companies.

This implies necessity of physical delivery on a `buy contract'.

When the seller has the option to cancel the contract by paying a pre-determined amount, how could purchase departments, whose main job is inventory management, depend on future trading for inventory management?

Future trading is essentially a hedging operation with in-built speculation content. Neither hedging nor involving in speculation falls within the realm of job profile of purchase departments.

Natural Rubber Dealer segment is doing a good job at nominal margin and tyre companies are comfortable in their interface with dealers for the buying of natural rubber.

Managements of tyre companies are also averse to their personnel getting involved in future trading, particularly because of the speculative nature of future trading operations.

Unless the volume increases substantially, it is said that future trading would become unviable. -