Profit booking dents rubber prices; analysts see 7-9% upside

Domestic rubber prices extended losses into the third straight day on Tuesday, taking their cumulative losses to nearly 2 per cent. Despite some profit booking causing a sideways to negative trend in the past few days, the industrial commodity has managed to hover near multi-year highs.

On

, rubber futures for May 31 delivery declined as much as Rs 170, or 0.97 per cent, to hit Rs 17,400 per tonne. At this level, the contract is 2.19 per cent away from its 52-week peak of Rs 17,789 per tonne hit last week.

Rubber futures quoted at Rs 17,499 at the last count in afternoon deals on Tuesday, down 0.40 per cent for the day so far.

Rubber rates have been rising steadily since mid-April due to tight supplies amid higher demand for rubber gloves and packaging tapes.

“Global rubber supply is running short due to stockpiling by China. US auto manufacturers are aggressively active before there is any squeeze in the markets,” NS Ramaswamy, Head of Commodities at Ventura Securities, told ETMarkets.

US PMI data and movements in crude oil are likely to influence rubber rates, he said.

Last week, while a sluggish trend was witnessed in rubber prices in key international markets, domestic prices continued to rise with spot activity affected by the Kerala lockdown.

“Downbeat economic data from the US last week and lower-than-expected Chinese data released on Monday triggered profit taking in this industrial commodity. However, weakness in the dollar index and strength in global equities restricts fall in the prices,” said Manoj Kumar Jain, Director and Head of Commodity Research, Prithvi Finmart.

Analysts say tight supplies are expected to continue to support rubber going forward on account of Covid-related restrictions but some volatility cannot be ruled out in the very short term.

“Even as the lingering pandemic may continue influencing the overall market sentiments, economic data from China may initially set the tone for the market… Rs.180 per kg may act as a key turnaround level in the near term,” said Anu V Pai, Senior Commodity Research Analyst at Geojit Financial Services.

The Kerala government has extended a state-wide lockdown till May 23. That is positive for the commodity though some relaxation has been given to certain sectors including the sale and transportation of natural rubber from May 17 to 21, she said.

Kerala, which is the top rubber producer in the country, had initially imposed a lockdown from May 8 to 16 to curb coronavirus infections. India is the world’s second largest consumer of natural rubber, behind China, and the sixth largest producer.

“Easing lockdown restrictions in the US, the EU and the UK could also support prices in the international markets,” Jain said.

Prices of rubber, widely used across industries with heavy demand from automobiles, aeronautics, electronics, healthcare and power transmission businesses, have risen more than 14 per cent so far this year (as of Monday’s closing price),.

Technical view
MCX near-month futures are expected to head towards Rs 18,500-19,000 per tonne in the near term, said Ramaswamy, who recommends a ‘buy’ on the commodity for a target of Rs 19,000 with a stop loss at Rs 17,000.

Jain said the current weakness in MCX rubber is merely profit taking with support for the contract expected around Rs 17,350-17,300.

He suggests buying MCX rubber futures on dips around Rs 17,350-17,300 for a target of Rs 17,600-17,700 with a stop loss at Rs 17,150.

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