Rubber Deficit in India to Surge as Rising Demand Outstrips Local Output

A natural-rubber shortage in India, the world’s biggest consumer after China, may surge almost five times over the next decade as rising incomes boost demand for tires, according to an industry group.

The deficit may increase to 840,000 metric tons in 2020 from 175,000 tons next year, Vinod Simon, president of the All India Rubber Industries Association, said in an interview. In 2015, the shortfall may be 687,000 tons, Simon said.

The forecast underscores India’s rising consumption of commodities as economic growth stokes consumer demand and the government boosts infrastructure spending. India’s “commodity demand has reached a tipping point, and growth is set to accelerate significantly,” Barclays Capital said last month.

“The rubber deficit may stay longer than we imagine as car sales continue to rise and a growing population boosts demand for health care products,” Anand James, chief analyst at brokerage Geojit Comtrade Ltd., said from Kochi, Kerala.

The stronger consumption in India may help sustain this year’s 34 percent rally in yen-priced futures. The contract on the Tokyo Commodity Exchange, which reached a 30-year high of 383 yen ($4.57) per kilo on Nov. 11, traded at 370.4 yen today. In India, spot prices in Kerala rose last month to more than 200 rupees ($4.43) a kilo for the first time. The Thai cash price surged to an all-time high today of 134.05 baht ($4.46) a kilo.

‘Still Be There’

The “increasing population of India will drive the market for rubber products,” Simon said yesterday from Bangkok, capital of the largest rubber producer and exporter, where he’s attending a conference. “Shortage will still be there.”

Rubber consumption may climb to 1.89 million tons in 2020, compared with 930,000 tons this year if the economy expands at 8.5 percent a year, Simon said. The South Asian nation’s economy grew 8.9 percent for a second straight quarter in July to September, a government report showed on Nov. 30.

India may expand faster than China in the next 10 years if the government boosts spending on roads and bridges and lifts investment curbs, New York University professor Nouriel Roubini said yesterday. “China is likely to slow in the coming years gradually and India’s growth is likely to accelerate,” boosted by a young population and higher consumption, Roubini said.

‘Through the Roof’

India’s Trade Secretary Rahul Khullar said this week that rubber demand is “going through the roof,” and local output from the world’s fourth-largest producer wasn’t going to expand dramatically. The government may allow imports of as much as 100,000 tons at a lower duty to help meet demand, Khullar said.

India’s rubber output totaled 88,500 tons in November, compared with 93,500 tons a year ago, according to figures from the state-run Rubber Board. Imports in the eight months to Nov. 30 totaled 143,468 tons from 139,321 tons as tire companies stepped up purchases, the board said.

“Rubber will remain a sellers’ market, as it has been in the past two to three years, as the demand-supply equation is unlikely to change soon,” James said. Thailand, Malaysia and Indonesia are the top three producers. Natural-rubber supply this year may total 9.5 million tons, according to the Association of Natural Rubber Producing Countries, whose members account for 92 percent of worldwide output.

Demand from India’s auto industry is expected to increase “substantially” in the coming years after investments by tire makers including Bridgestone Corp. and Michelin & Cie., said Simon. Annual car sales may double to 3 million by 2015, according to a projection from India’s government.

Bridgestone and Indian rivals including Apollo Tyres Ltd. and MRF Ltd. are investing $3 billion in plants to meet demand that’s forecast by Automotive Tyre Manufacturers’ Association to expand 10 percent to 106 million tires in the year to March 31. Rubber makes up 42 percent of raw-material costs, according to the manufacturers’ group.

To contact the reporters on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net

To contact the editor responsible for this story: James Poole at Jpoole4@bloomberg.net

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