2010: A combination of soaring demand, hostile weather conditions, currency fluctuations and the slow pace of replanting and

maturation of the rubber tree.

 La Nina, which started in June and usually lasts for nine months or more, has led to higher-than-average rainfall in
most parts of Southeast Asia.
 Major supply increases from Indonesia (production increased by 33%high rubber prices resulted in dormant and
neglected trees into productive operations) did not make up for a massive production shortfall in Thailand (heavy rains
flooded 20000 hectare of rubber area-- This caused not only short-term supply issues because of harvest disruptions,
but also long-term problems because of tree damage that could reduce Thailand's NR production by 30,000 metric tons
annually) and Malasia caused by heavy rains and flooding in the fall of 2010.
 Currency rate of major importing/Exporting nations Natural rubber prices historically have risen on the currency
appreciation of producing nations, namely the Thai baht, the Indonesian rupiah and the Malaysian ringgit.
Strengthening of currencies against US dollar always exerts upward pressure on NR prices quoted in US dollar terms.
This compels exporters to raise offer prices whereas weakening of currencies works on the other way. Rubber prices
have gained from appreciation of Thai baht and Malaysian ringgit (during July to October) and the appreciation of
Indonesian ruppiah.

Such extreme weather and aging trees in the key rubber-growing countries of southeastern Asia—

NR production= 10.2 million metric tons

NR demand= 10.31 million metric tons.

The rubber production for 2010 grew by 4.9%

High prices have prompted farmers to retain aged trees by postponing replanting in the last 2 years. In Thailand alone rubber
trees in 16,000 ha were lost due to cyclone/floods in 2010. Yielding area’s expansion during 2010 was due to harvesting of
dormant trees.

Supply can improve? Not until 2012 .. some of the replanted areas in Thailand and India will start yielding. China’s production
too is estimated to improve by 2012

Condition to remain same + highly dependant on favorable weather

 Damage and loss of trees due to typhoon or floods in countries like Thailand during 2010 will have its negative impact
on 2011 output.
 Improvement in average yield will be marginal during 2011 mainly on account of increasing influence of non-
traditional regions where yield potential is lower and the farmers are generally new to rubber cultivation.
 There could be possible damage to yield potential due to unscientific over-exploitation of trees during 2010, prompted
by abnormally high prices. Farmers have already exploited available short-term means on the heels of abnormally high
prices. Therefore, scope for further improvement in yield by short-term means is practically zero
 Crude oil prices—as effects SR production—and hence increases price on NR through speculation on possible
substitution between NR and SR. 
 Crude oil prices—as effects SR production—and hence increases price on NR through speculation on possible
substitution between NR and SR. This time its different- recent rise in NR prices (which usually creates a strong
incentive to substitute NR with synthetic rubber (SR)—high crude prices at present don’t support the hypothesis).

ANRPC expects only a marginal (less than 5%) rise in supply during 2011. Even this is on the assumption of having a normal
climate and a low uprooting rate.

The supply crunch in the market is expected to continue at least till May due to the wintering season, when trees shed leaves
and latex production drops. Thai rubber output declines as much as 60 percent during wintering compared with peak levels. From
May 2011 until end of the year, supply may be back to normal. Post may owing to increase in supply—funds could liquidate the
long positions

Rubber consumption has continued to grow strongly

Global NR usage rose by 11% in 2010 -> to 10.31m tonnes, which more than reversed the 7.6% fall in consumption in 2009.

 U.S. sales of cars and light trucks rose 17.3 percent from a year earlier to 817,098 in January—signaling demand
revival of rubber in US

Demand in China, the largest user, may gain 9.1 percent to 3.6 million tons; India's usage may gain 5 percent to 991,000 tons and
consumption in Malaysia may rise 7 percent to 490,000 tons. Assuming global vehicle sales (passenger and commercial) to grow
by 9.5% in 2011, compared with 14.2% in 2010.

 As a result of the slowdown in vehicle sales and increased SR substitution, we expect NR demand to grow by 7% in
2011.
 ANRPC expects only a marginal (less than 5%) rise in supply during 2011. Even this is on the assumption of having a
normal climate and a low uprooting rate.

2011 looked set to be the fourth year in the last five in which demand for the tyre ingredient will exceed production.
Hence we expect the price to remain elevated.

in’000 kg CY07 CY08 CY09 CY10 CY11E

Supply 9890 10128 9702 10177 10696
Demand 10175 10203 9277 10310 11224.3
           
Deficit -285 -75 425 -133 -528.3

India rubber Outlook:

The peak season for Rubber harvesting is from October to January. During monsoon season the price generally increases Reason:
It’s a lean period of harvesting so prices get a boost due to less availability and traders perception about production in the coming
season

Positive from Apr’11: Import duty cut on natural rubber to 7.5% from 20% for shipments up to 40,000 tonnes until 31 March:
The duty will be reinstated at whichever is the lower of 20% or Rs20 per kg after that date. That would mean an import duty of
9-10% from April, at prevailing rates.—Duty on Tires is 8.5%
 Impact: It would correct the inverted duty structure in the tyre sector and will, in the longer term, temper rubber prices.
It became cheaper to import tyres instead of rubber. There has been a 20% rise in Chinese tire volumes in the trucking
segment and a 36% rise in passenger tyres, to service the auto boom in the country--A low 8.5% duty on imported tyres
made Chinese/Korean tyres 30-40% cheaper in the passenger replacement market than Indian ones.
 Indian tire makers will start imports once international prices fall below domestic level. Then they will benefit from
lower duty.
 Still if we observe for the current fiscal—Owing to “rubber demand>domestic production”( demand-supply gap,
expected to be around 60,000 to 80,000 tons in the domestic market during 2010) importing at inverted duty structure
 becomes a requisite, tire makers have paid the 20% duty and they have brought in all these products. Around 30-35%
of the total produce of natural rubber coming into India was duty paid. This would forego from Apr’11.

India rubber output: FY11 natural rubber output seen 851,000 tn, up 1.9 %--(down 4.8% from an earlier estimate, after heavy
unseasonal rains affected tapping.)

For FY12- Right now 9.10 is the estimated level. But the re-estimation will be done only after considering the meteorological
conditions this year