The Auto-Tyre and Tubes sector has lost its momentum, hitting the bottom as the prices of rubber sky rocketed. The price of natural rubber in India which had been reigning high over international market prices since December 2013 has declined in the third quarter of 2016. From the second week of November 2016, the prices of natural rubber shot up and are currently perched at higher levels. Though it is the peak harvest season, tapping has been partially affected by demonetization and insufficient northeast monsoon.
Rubber at the global path:
Natural rubber prices in India may hit Rs 150 per kg in a few weeks and the traders confirmed the fact, as the commodity continues to get momentum in a rally that started last month. They said prices are moving in cycle with the international prices, which surged to Rs 162.69 per kg, due to a surge in crude oil prices, increased demand in China and appreciation of the Dollar. In India, the commodity was trading at Rs 138 per kg at the end of last week. The signal is that Indian prices will rise to Rs 150 per kg or more, thinning the gap with the international price
According to a senior executive at the Rubber Board, Indian rubber prices usually track international prices and the market perpetually adjusts to international prices often with a time lag. Rubber would have gushed to the market had there been no constraint on cash withdrawals from banks in the wake of demonetization.
Impact on Tyre stocks:
Higher international prices have made imports costly. Consumers have no choice but to buy from the Indian market. Import contracts for the next three months could fall considerably. But purchases by the rubber industry, especially tyre makers, may not show a significant increase, given downswing in sales. To add to their woes, a rise in crude oil prices has also resulted in an increase in the price of synthetic rubber, an important raw material derived from petrochemicals.
All these reasons have put a lot of pressure on the tyre manufacturing companies. In the wake of rising rubber prices, tyre stocks have taken a hit.
Today, JK Tyre share price declined 2 per cent, Balakrishna Industries share price declined over 2 per cent, TVS Srichakra share price slipped by a per cent. Balakrishna Industries is the Multibagger stock recommendation by Dynamic Levels and JK tyre and TVS Srichakra are the top 500 performing stocks for the quarter by Dynamic Levels.
Other stocks like Ceat, Apollo tyres and MRF also declined anywhere from 2 per cent to 5 per cent while the Benchmark Index Nifty traded green at 8094.25 levels with the surge of 0.15 per cent.
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