Friday Nov 15, 2024
Friday Nov 15, 2024
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Sri Lanka’s listed rubber manufacturing companies are likely to benefit from the growing demand and elevated prices, as a result of the supply constraints in India.
As per the market data, rubber export auction prices for ‘latex 1X’ rubber this week hit a six-month high of Rs. 725 per kg, reflecting an increase of 60% year-on-year (YoY).
Capital Alliance Research (CAL) said the price increase could be linked to lower production volumes in India, rising rubber demand and the depreciation of the Sri Lankan Rupee.
India, the fourth largest rubber producer is facing a sharp drop in production due to heavy rains in Kerala, disturbing the peak rubber tapping season which extends from September to January. The heavy rains are expected to continue till next month and the inability to carry out tapping activities at regular intervals has resulted in yields declining by 50%.
In the meantime, the overall demand (tire and non-tire) for rubber has strengthened especially from Southeast Asia and China, reflecting the recovery in global markets. Due to increased demand from manufacturers, China plans to import a large quantity of rubber over the coming months. India too is looking to import the domestic rubber shortfall in an attempt to mitigate any supply chain disruptions over the coming months.
Moreover, the global automobile manufacturing industry crisis caused by a semiconductor shortage is likely to ease in 4Q of the year. With the normalisation of the supply of semiconductors with the expansion in global chip production capacity, an increase in demand for rubber within the automobile industry is expected. Short term pent-up demand and the lifting of COVID restrictions in Japan is expected to further strengthen the demand increase for rubber with the commencement of manufacturing activities.
In analysing the market trends, CAL forecasts that a surge in rubber prices will see an immediate increase in plantation companies revenue, which will be directly translated to its bottom-line.
