Rubber climbs 1-month peak; analysts see 9% upside: Time to take positions?

Prices of rubber, an industrial commodity, jumped on Tuesday to the highest level in nearly a month amid supply shortage, adding to a rebound that began last week as firm demand along with positive cues in the international market boosted sentiments of market participants.

MCX rubber futures due for delivery on May 31 traded 1.52 per cent (Rs 254) higher at Rs 17,010 per tonne, having touched Rs 17,050 per tonne earlier on Tuesday – a level last seen on April 7.

Analysts said the commodity is set for higher levels ahead fundamentally on account of tight supplies, thanks to demand from industries such as automobiles and healthcare.

“Increased demand for rubber gloves and packaging tapes during the pandemic has resulted in tightening of natural rubber supply... Global rubber supply is already running short due to stockpiling by China, while US auto manufacturers are rushing to secure shipments before the market gets squeezed further,” said NS Ramaswamy, Head of Commodities at Ventura Securities.

India is the world’s second biggest consumer of natural rubber, behind China, and the sixth largest producer.

Rubber prices have risen around 10 per cent so far this year and some see upside potential of a further 9 per cent going forward.

Time to take positions?
Ajay Kedia, Founder and Director of Kedia Advisory, has a positive outlook on natural rubber with the price set to test Rs 17,050-17,300 levels in the next one month.

Ramaswamy recommends buying the near-month contract above Rs 17,350 for a target of Rs 18,500 with a stop loss at Rs 16,500. “Technically, we expect MCX rubber to trade sideways over the next few weeks (Rs 17,350-Rs 15,500) with a possible breakout on either side,” he said.

The road ahead
Natural rubber is expected to trade firm in the week ahead, but disruptions on account of pandemic-related issues will be tracked closely for cues, said one analyst.

“Consecutive holidays in major international natural rubber markets and key economic data releases from the US and China will weigh on prices,” said Anu V Pai, research analyst at Geojit Financial Services.

Market participants will also monitor updates on manufacturing activity keenly for cues on rubber prices. Analysts say any negative news from the sector may affect demand for the commodity.

“A correction in crude oil rates would drag the rubber prices lower,” said Ventura’s Ramaswamy.

Meanwhile, Brent futures traded more than 1 per cent stronger at $68 a barrel at last update. The oil benchmark has appreciated 32 per cent so far this year.