If there is a boom in rubber prices, then a fall is inevitable and imminent. For the last several years, this drama has been enacted every now and then.

Rubber growers who worked hard could make significant progress in respect of rubber production, area, productivity, etc. However, the price fall every time disappointed the growers.

The Sheikhs in the Gulf and the small rubber growers in Kerala are equals in one respect. The income of both is decided by crude oil prices. The ups and downs in crude prices reflect in natural rubber too.

During the first week of October last year, the oil price was $52 a barrel in the European market, but it nose-dived by the middle of January to $26. Again, oil prices firmed up, and finally at the end of March, reached $42.

The Bangkok price of RSS-3, considered the global benchmark price for sheet rubber, was also moving in similar directions.

Those who are into futures trading generally believe that artificial rubber (synthetic rubber) produced from petroleum is a substitute for natural rubber. But the facts are quite contrary. When the crude price improves, the price of synthetic rubber naturally firms up. In such a situation, consumers might reject synthetic rubber and turn to natural rubber.

Rising in tandem

Short-term investors engaged in futures trading think that demand will go up followed by better prices for natural rubber. Along with the increase in investors, the futures price of natural rubber in Tokyo, Shanghai and Singapore exchanges will rule high.

As and when the oil price picks up, its reflection will appear in the physical market as well. In other words, rubber futures trading functions as an important link connecting natural rubber prices with oil prices.

An analysis of rubber prices during the six-month period that ended in March reveals that every 1 per cent change in oil prices brings a 0.68 per cent change correspondingly in natural rubber in the same direction. The future of natural rubber, to a great extent, depends on the movements in oil prices.

Members of the Organization of the Petroleum Exporting Countries ( OPEC) and non-members who are also oil producers met on April 17 and took important decisions and adopted strategies to enhance oil prices.

According to a report released by the US-based Energy Information Administration, much fluctuation is expected in oil prices in 2016. It is possible that prices this year will fall to $20 and then shoot up to $81 in December.

The uncertainty in oil prices will affect natural rubber also and it confirms that the villain behind the rubber price fall is none other than crude oil.

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