Gap Between Rubber’s Supply and Demand Widens

Concerns regarding rubber production have raised alarms on the industry. Annual rubber yield has been on the decline for several consecutive years now and data is revealing that production would continue to drop.

Between 2013 and 2014 there’s been a 14 percent drop of rubber harvest. Between 2014 and 2015 that number has increased by 1 percent, placing it on 15 percent. And in the first two months of this current fiscal natural rubber has decreased by 11 percent.

Concern Over Numbers

It is expected that the demand for natural rubber will increase as the tire industry has recently come out of a long recession. But with the current state of things it would seem that the gap between demand and production will continue to expand.

Those that will be hit hard will be the MSME (micro, small, and medium enterprises), small players who doesn’t have enough funds to hold large inventories. The natural rubber consumption has seen a 4 percent increase between 2014 and 2015 and the trend is poised to continue this year.

The numbers in the previous fiscal shows that there has been a 3.6 lakh tonne difference between demand and production. Director General of Automotive Tire Manufacturing Association, Rajiv Budhraja, expresses his concern over this.

This sentiment is echoed by Mohinder Gupta, president of the All India Rubber Industries Association.

A Vicious Cycle

It can be noted that this decrease in natural rubber production is attributed to the low prices that the market is demanding. Rubber consumers has been pleading for lower domestic prices for years now which resulted in farmers turning away from harvesting the product.

Almost half of rubber’s price has dropped four years ago leading to several plants closing due to financial losses.

Rubber growers from Kerala, accounting for 90 percent of India’s natural rubber yield, have been considering turning their back on the industry as financial value of the product has taken a nosedive over the years. And now the market is hurting from the gaping hole.

Earlier this year rubber import has been expected to drop from 300,000 tonnes to 100,000 tonnes in 2016, which would have implied stable growth in domestic production. But predictions have never been concrete, as it can observe with the current set of things.

So at one end the buyers are pushing prices down, and on the other end the producers are losing profits, forcing the latter group from walking away from the venture as it isn’t as profitable anymore.

What experts are considering now is finding common ground between consumers and providers. There must be a middle ground where both sides will benefit from each other.

Others are suggesting that solutions should start from the ground up. Provide enough incentives for farmers to get them back in harvesting rubber. Others believe that the key to get production rolling is to increase rubber’s financial value. It would make sense as that would provide the incentive that can potentially get people back into farming rubber.

But these are just ideas at the moment. Solutions and decision will have to be made soon before things get out of hand.

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