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Rubber imports may come down 

As value added tax (VAT) comes into force in Kerala rubber trade has moved into a lower tax regime which experts say will benefit growers and user industries alike.  Under the VAT, natural rubber will have only four percent purchase tax instead of 12.65 percent that existed till 31st March, 2005.  This drastic tax reduction is expected to reduce the tendency to import rubber by tyre companies and other consumers, driving consumption in the domestic market. 

If the international rubber price is higher by over Rs. 2.50 a kg. Even duty-free import will become unattractive since the domestic rate plus the four percent VAT and Rs. 1.50 surcharge will still be cheaper than the import price, tyre industry sources said.  In the past, when domestic prices surged, tyre companies found imports more viable in view of the 12.65% purchase tax and surcharge in the local markets. 

Rubber growers are set to benefit out of the new tax regime, as with increasing consumption, prices would tend to rise.  On the other hand consumers will pay lower taxes for procuring their raw material. 

Although kerala, which produces over 90 percent of India’s natural rubber, stands to lose over Rs. 100 crore because of the lowering of the tax on rubber, VAT will completely eliminate the problem of interstate smuggling of the commodity because of the higher rate of purchase tax prevailed in the State, rubber used to be smuggled into neighbouring States such as Tamil Nadu and Karnataka where the tax was lower.  Tamil Nadu is yet to adopt VAT, but the eight- percent tax on rubber in the State automatically brings smuggling to an end.  Karnataka has switched to VAT. 

In the run-up to the VAT regime, rubber industry saw its own set of problems cropping up and disappearing.  The State Government’s decision to impose 12.65 percent tax on the closing stock of March 31 made the traders frantically disposing of their stock. 

Tyre companies and other consumers too postponed their procurement to April to benefit from the lower rate of VAT. Prices fell sharply. The Government later changed its mind and announced that only four percent tax would be levied on the closing stock of March 31, Prices recovered soon after the trade become active. 

As a flipside to the VAT , some experts point out that small-time rubber dealers, who had never had to pay taxes as the purchase tax was charged on the buyer at the last point of sale in the State, will now have to keep books and accounts, perhaps for the first time and will suffer from complexities of taxation. 

The process of bringing thousands of small dealers under the tax ret is a complex affair, they argue.  However, the Government has given six months’ time for the traders to get accustomed with VAT. 

Imports Continue to rise 

The rubber-based industries in Kerala, mainly tyre manufacturers, would be on a smoother ride due to the introduction of value-added tax (VAT).  The purchase tax of rubber had been reduced to 4 per cent from the earlier 12.65 per cent from 1st April and this will help the tyre industry to save Rs. 180 crore per annum according to some estimates.  Of the total production of seven lakh tones of natural rubber, the tyre industry alone consumes around 60 per cent. 

The reduction in tax means Rs 45,000 can be saved for every nine tonnes truck load of rubber. 

But the growers are in dilemma due to the fluctuation in prices and higher imports. 

A local grower said the market today is quite similar to 1995-96 where prices few-the average price for the year was Rs. 52 per kg. This happened due to low stocks-which stood at just 68,000 tonnes on 31st March, 1995. 

But due to increased import in the subsequent years, there was a glut and prices dropped to an average of Rs 30. Between 1996 and 2001, a total 1,84,000 tonnes of rubber was imported.  Today, the price is in tune with the global prices after almost 10 years. 

As on 31st March, 2005, the total stock was 77,000 tonnes, which is one of the major reasons for the recent increase in prices. 

The increased inflow of imported rubber is giving local growers a headache.  According to Rubber Board sources, total import in 2004-05 was 66,198 tonnes, but the shortfall in supply with regard to demand is to the tune of 5,000 tonnes only. As the export is very low-key, the import may cause an increase in stock and the market may face a similar situation as that of 1995-96. 

Lanxess to expand Production 

Lanxess is to expand production of halobutyl rubber at its two plants in Sarnia, Canada and Antwerp, Belgium.  The combined expansion will come at a cost of Euro 40 million and will increase lanxess’ total capacity by 25 percent.  Lanxess is the second largest producer of halobutyl rubber in the world, after Exxon Mobil.  Lanxess currently operates as a subgroup of Bayer comprising most of the firm’s rubber and chemicals activities. Dr. Axel Heitmann, chief executive of Lanxess speaking at the company’s first ever press conference said the company’s total capacity for butyl is 200 000 tonnes per annum, implying that the expansion will be 50 000 tonnes. 

Ingo Fischer, the new global product manager for chloroprene rubber at Lanxess Deutschland GmbH said,  “Baypren is still a viable business.  Expanding rubber applications like replacement of natural rubber in air springs is a base for solid growth.” The company added that it will expand packaging capacity at the plant, to support increasing use of CR in polyethylene bags. 

World rubber output growth slows down 

Though the world NR and SR output rose to 20.44 tonnes in 2004 representing an increase of 4.9% over previous year, reports indicate the growth rate has slowed down.  

Much of the growth in world NR out put was the result of sharp rise in Malaysian and Indonesian production, while Thai output fell marginally. Though there was steady growth of SR production in the Asia Pacific region and recovery in North Amercia and European Union, there was sharp drop in other Europe in 2004. 

Meanwhile latest study shows that world NR output is expected to rise by 4.8% in 2005 before slowing it to 1.6% in 2006. Malaysia will lead the increase while other Asia. Africa and Latin America will see relatively slower growth 

World SR output is expected to slow down to 3% and 2.5% for the next two years because of the fall in other Europe.  However Asia Pacific region will act as the engine for growth in the next two years. 

China Surges ahead in rubber consumption 

Latest estimates of Chinese rubber consumption indicate that China increased its share of the world market to almost 21% in 2004 from 18.8% in 2003.  The Chinese rubber consumption rate has been increasing at the rate of 11% per year since 1990. 

The  ‘China factor’ is bound to play a crucial role in the coming years.  The rapid expansion of the Chinese economy especially the automotive industry had resulted in an explosion in tyre demand. 

According to China Rubber Industry Association, rubber consumption is to rise to 3.5m tonnes in 2005 of which 1.5m tonnes will be NR and 2m will be SR. Meanwhile, china has forecasted to produce 5 million cars in 2005. 

Aims to become world’s No. 1 NR Producer 

 The Indonesian Government is planning to make the country the world’s largest m natural rubber (NR) Producer by 2020, says Mr. Anton Aprupantoni, the Agriculture Minister. 

Currently, Indonesia is the world’s second largest rubber producer after Thailand with a total production of 1.8 million tonnes in 2003 and an anticipated 2 million tonne output in 2004. Malaysia and India occupy the 3rd and 4th positions in global NR production. 

Indonesia has the largest area under rubber (3.3 million ha) followed by Thailand and Malasia.  However, about 80% of the rubber estates are 20 year old and are owned by small holders. 

In a bid to become the No.1 producer, the government in planning to replant 400,000 ha f small holder’s plantations during 2005-10, according to the Minister.

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