Market Next


July 06
13:02 2016

One of the significant agricultural commodities that control the agronomy and industrial progression of the South and SE Asian tropical belt is NR. When European colonial powers introduced this exotic plant from the new world in tropical Asia in the late 19th century and early 20th century, it heralded a new era in plantation dynamics and automotive industry.

However vagaries in the price structure have cast a spell of gloom and despondency in the NR plantation regions.  Though labour charges and production costs have increased multi-fold over the past few years, decreasing productivity owing to the systematic depletion of the micro nutrients across generations of rubber plantations, and continuous market failures have rendered the farming community prone to grave existential threats. In fact, the one million rubber farmers in the midland undulations of Kerala, India, are reeling under severe resource crunch when the price nosedived to catastrophic levels. In SE Asian region, huge plantations are left idle owing to the price collapse. (Interestingly this thaw in price of NR is not echoed in the price of rubber products.) Data show that production and consumption of NR are steadily on the decline across the world. Alarming questions about the future of NR based agro economies have cropped up in the affected circles in the recent months.

In 2014 NR production had declined by 15% and SR production increased by 33.7% to fill into the vacuum and in the same period consumption of NR dropped by 3.3% whereas the consumption of SR increased by 5.2%. Almost the same pattern could be discerned in 2015 also. In 2016 production of NR decreased by 14.5% and that of SR increased by 36.2%. During the same time span consumption of NR has fallen by 4%.

Here the operating market mechanics are the invisible NR-Crude Oil coupling. Even today, as at the dawn of economics, price is governed by demand and supply linearity. Market glut of crude oil resulted in the free fall of crude prices and now it oscillates between 35- 45 dollars per barrel. There are no vital market cues or potential political triggers in the highly inflammable Middle East or elsewhere in the world which could place crude on a promising price trajectory. Cheap crude resulted in cheap SR seriously threatening the survivability of the NR farmers. However the world cannot yet switch over to SR once and for all pushing NR to the dustbin of history as NR is the sine qua non in the production of high performance tires. Yet with the steadily declining prices, NR farming community currently limited to only 1% of the global land area, has become a very threatened species. There will be no NR sans NR producers. As there is no substitute for NR, the ruthless market dynamics itself will handhold the price to promising levels in due course.

The temporal crests and troughs in the NR price pattern is yet another pitfall in the wobbling NR economy. Price tends to reach a peak in June- July during the heydays of SW Monsoon when production hits its lowest ebb and the producers are by far wintering, and it hits a rock bottom in December –January when production and productivity are at the highest level. In this context, the concept of regional rubber banks, now at an embryonic stage, appears to be promising and is in the interest of the otherwise marginalized farming community. In December 2014, the average price was Rs. 9233 per quintal and in June 2015 it was Rs. 10072. In December 2015 the price stood at Rs. 7772 and in April 2016 it reached Rs. 5000.

However, given the shape of things to come, NR is poised to have a pivotal market role in the-none-too distant future. NR production is confined to south and SE Asian monsoonal belt and a spatial proliferation of NR is out of question. The traditional rubber belt is almost saturated already. Hence this region is going to enjoy a durable monopoly over this economic good. As NR does not stand a chance beyond the traditional areas, the regional monopoly is bound to remain intact and unchallenged.

NR – crude decoupling is only a matter of years. The recent Paris environment summit has already driven in the first nail on the coffin of crude. If the world phases out dirty fuels in another fifteen years or so, the market relevance of crude as an industrial raw material, as the prime propellant of the world economy and as a potent geopolitical tool will be a thing of the past. Already Saudi Arabia, the centre stage player on the global petro dollar stage, is busy gearing up for a post crude economy. They are piecing together the essential survival kit to subsist once the fossil fuel bubble busts and the economy collapses. India, one of the major consumers, is determined to switch over to battery cars from diesel and petrol in another thirty years. TESLA has already introduced economically viable battery cars and the commercial products will hit the roads in early 2017. General Motors also is very much on the scene. In the same period China and Japan, the front line economies of the world, are preparing to back out from fossil fuels. Once crude forfeits its envious position as the prime mover of the world, its mining will not be of any significance. The world is taking concerted and painful efforts to fight green house gases on the wake of the spectre of climate change and the deleterious ramifications thereof as extrapolated by the environmental messiahs of doom.

All these developments portent a designed euthanasia to petro dollar and all that it stands for. Once this happens, which is only a matter of time, NR will have no serious rival on the shores of global agronomy.  Hence the succinct writing on the wall is that NR and it s producers stand to gain, and they will gain solidly. The price will shoot up in the days to come.

However, in the meantime, the powers that be have to accomplish certain quasi political missions such as presiding over the decline of Russian economy, presenting Venezuela as a failed state as in the case of Libya and Syria, cutting the surging Chinese dragon to size through the engineered progerial demise of the Euro with wilful and wishful US midwifery. Frexit and Brexit and the Techno-dollar summarily marrying the petro dollar widows are the prospective high drama taking shape in the spatio-temporal womb.


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