Rubber Markets Finish on Subdued Note – Will the Downtrend Continue

Rubber markets of India saw a cooling off in the price levels during the later part of last week. Spot as well as futures markets were seen trading with a subdued note right from the beginning of this month.

The commodity had started to appreciate by July end onwards, and by end of August, the Sept. contract of MCX rubber had gained nearly Rs.1200/qtl, when compared with the average prices prevailing during the last week of July. The market is experiencing an acute shortage of RSS grades, which is responsible for the recent upswing in prices but as the new season approaches, most traders are bringing their stocks in greater quantity, due to which the markets were under pressure during the latter part of the week. The traders are often selling their produce as latex now.

The markets had been in an upward trend in the month of August because of lower arrivals in the country, improving industrial demand from such as automobiles and healthcare industries. An additional bullish price driver was the frequent rainfall in the major producing state of Kerala which slowed down the daily arrivals. There has been a positive development with respect to the performance of the monsoons. Therefore traders now expect new season arrivals to improve in forthcoming weeks. It is quite likely that rubber may continue with the downward journey in the coming days.

Trend down for short term, long term still positive:

Chart studies do agree with the possibility of further downside from Friday’s closing price of 17700-17800 in the September contract. We expect the September contract at MCX to test 16900-17000 this week. Since the broader view appears positive, chances for a strong pull back remain higher from these levels.

On the higher side, prices may not sustain above 18500 in near term unless any major trigger emerges from the overseas markets. Most traders now feel that the growers may resume the processing of sheet rubber, in case the prices stay within the range Rs.15000-18000 a quintal for a few more weeks, since it will be a comfortable level in the producing as well as the consuming sectors.

Business avenues appear brighter from a broader term perspective. Taking in consideration the new habits, health awareness and awareness of hygiene in context to the coronavirus pandemic; increased glove usage in industries such as the F&B industry and aviation industries, it is quite likely that demand for this product will be robust, therefore the global rubber glove shortage will continue for next one or two years as well.

According to the MARGMA (the Malaysian Rubber Glove Manufacturers Association), the requirement for these gloves rose first in early 2020, when global demand first expanded due to the urgent need for Personal Protective Equipment (PPE) to control the spreading of the virus. That time there was a shortage of 100 billion pieces of rubber gloves, with demand hitting 460 billion pieces but supply was not more than 360 billion pieces.

Interestingly the shortfall was 40 billion pieces, even a year ago i.e. the pre-pandemic year when global demand was at 340 billion pieces. Also, India’s automobile industry, which is currently the fourth largest in the world, is expected to become the third-largest in the next few years, as predicted by leading rating agencies. Therefore under the given scenario, we expect rubber prices to average higher in 2022 as well.