MUMBAI (Oct 17): Indian natural rubber output is likely to drop over 10 percent in 2014/15 from the previous crop year, hit by heavy rain in key growing regions and as farmers suspend tapping due to lower prices, the head of the country's top producer said.
Falling output amid rising demand from the local auto industry would force the world's fifth biggest rubber producer to increase overseas purchases of the tyre making material.
That could support international prices that plunged more than 30 percent this year on worries over a slowing economy in top buyer China, with Indian natural rubber prices touching a five-year low earlier this month.
"A few farmers have given up tapping. They won't resume unless prices recover substantially," N. Dharmaraj, chief executive at Harrisons Malayalam Ltd, told Reuters.
"Production will be down by at least 10 percent. Prices are not encouraging farmers to increase tapping."
The spot price of India's most traded RSS-4 rubber (ribbed smoked sheet) has fallen over a quarter so far in 2014 to 12,250 rupees ($200) per 100 kg at the major market of Kottayam in the southwestern state of Kerala.
"Production usually peaks in the December quarter, but this year farmers are not interested in tapping. If we lose production now, it can't be compensated for in the March quarter," said George Valy, president of the Indian Rubber Dealers' Federation.
India's natural rubber production dropped 7.6 percent to 844,000 tonnes in the 2013/14 crop year, which ended last March.
In the first half of the year that started in April, the country's output fell 2.3 percent from a year ago to 337,000 tonnes, while consumption rose by 3.6 percent to 509,085 tonnes, according the state-run Rubber Board.
A senior official at the Board said it would be forced to revise down an earlier forecast that put production at 885,000 tonnes this year.
Tapping in the last three months has been disrupted by heavy rainfall as many farmers have not used rain guards this year, Dharmaraj said.
Rain guards are typically pieces of plastic that surround a tree's trunk above the tapping panel. Farmers sometimes fit guards ahead of the June-September monsoon season, although they can be put off by the extra cost.
The southern state of Kerala, which accounts for more than 90 percent of the country's natural rubber output, received 6 percent more rainfall than normal during the June-September monsoon season.
The impact will be felt even in the January to March quarter as trees have lost large numbers of leaves due to heavy showers, Valy said.
The slowdown in production has been widening the gap between local demand and supply, prompting tyre makers to import more.
Tyre firms, the biggest consumers of natural rubber, have been boosted as Indians buy more vehicles amid optimism about the economy under the new government of Narendra Modi.
Car sales are expected to rise between 5 and 10 percent this fiscal year, according to the Society of Indian Automobile Manufacturers.
Natural rubber imports in the first six months of the current fiscal year jumped nearly a quarter from a year before to 225,652 tonnes.
Industry officials had forecast imports could surge to a record 400,000 tonnes in 2014/15, but now believe they could go beyond that.
"The production trend and cheaper availability in the world market suggests imports could be more than 400,000 tonnes," said Dharmaraj.
India, which buys most of its natural rubber from Thailand, Malaysia, Indonesia and Vietnam, imported 325,190 tonnes in the last fiscal year to March 31. (1 US dollar = 61.5500 Indian rupee)