Alleging speculation in the futures market playing havoc with physical markets, consumers of natural rubber led by the Automotive Tyre Manufacturers Association (ATMA) and the All-India Rubber Industries Association (AIRIA) have asked for immediate suspension of futures trading in rubber.
Mr Vinod Simon, President of AIRIA, said in a statement that speculation in domestic futures seems to give least consideration to demand-supply fundamentals. It is quite puzzling why domestic rubber should rule significantly higher than international prices when “we are in midst of peak production months and carrying more than 2.5 lakh tonnes as suggested by the Rubber Board”.
In a letter to the Forward Market Commission, the ATMA has pointed to speculation in futures impacting the spot market. According to the communication, the recently-expired November contract had open position of 1,491 tonnes as on November 1 and stocks in warehouses were just 110 tonnes. This held the contract under pressure till expiry.
Resultant trends were just not in sync with fundamentals. The November contract shot up to cross even Rs 19,900 on November 12, while international prices of RSS-3 (equivalent to India's RSS4), according to the Rubber Board were just Rs 16,182.
Fallouts
According to NR consumers, there are several direct fall-outs of this phenomenon. Farmers and traders get misguided by temporary and illogical trends and tend to hold stocks, while on the other hand, consumers have no option but to contract imports, as not only availability is grossly inadequate, but landed price difference too is very large in range of Rs 25-30 a kg. However growers and traders both stand at risk as situation could get worse when heavy imports land up in peak production months.
The concern expressed by NR consumers comes in the wake of a related communication by Mr N. Radhakrishnan of Cochin Merchants Association to Prof K V Thomas, Union Minister of State for Food and Consumer Affairs, saying that though delivery effected by futures is only 16,000 tonnes in a year, the speculators transact 24 lakh tonnes in the exchanges creating heavy volatility in the prices.
Such speculative character of futures trade adversely affects the regular NR traders who physically buy rubber from farmers and sell the same to consumers. The dealers have to invest the entire amount in buying rubber from growers, whereas the speculators in futures need only the margin money to trade unlimited quantities. Neither the speculators nor the exchanges have any direct contact with the growers, he said.
The traders are not against the concept of futures trading but are concerned at the manner in which the speculators conduct futures trade through exchanges. The speculators in NR futures only try to push up or pull down the market every day to take advantage of the volatility, he said.