Alleging that heavy speculation in rubber futures is playing havoc with the physical markets, the Automotive Tyre Manufacturers’ Association (Atma) on Wednesday sought suspension of futures trading in natural rubber (NR).
In a letter to the Forward Markets Commission (FMC) and the Rubber Board, Rajiv Budhraja, director general, Atma, said rubber futures went up by Rs 5 for the November contract on Monday, touching Rs 191 a kg from Rs 186 a kg earlier. The futures touched Rs 200 for the January contracts on Wednesday.
As a fallout of this, growers are holding back stocks, as they expect a rise in prices on account of aggravation of NR scarcity. The local spot price of RSS-4 grade rose to Rs 186 a kg on Wednesday.
“Traded volumes jumped to an average of 8,000 tonnes from 3,000-4,000 tonnes earlier, indicating heavy speculation. The open position is also successively declining, clearly showing that intra-day players are on the prowl. We fear a bubble is in the making and that action needs to be taken to keep the market under check. Otherwise, such speculation may affect genuine stakeholders in the NR value chain, that is, rubber growers, dealers as well as consumers, adversely”, he said.
Generally, local futures follow trends at the Tokyo Commodity Exchange (Tocom), considered to be the benchmark for rubber futures trading. On the contrary, while there has been a sharp rise in rubber futures, it fell four yen at Tocom on Monday, the day when local futures rose Rs 5. With the country’s stock at 275,000 tonnes, as stated by the Rubber Board, such speculation was not justifiable, said Atma.
If not a temporary ban, Atma has asked for lowering the price limit on futures trading to one per cent from four per cent. High volatility in the futures market had resulted in FMC reducing the price limit to two per cent, before suspending trading in May 2008. Trading resumed in December 2008 after NR prices normalised. But intra-day circuit limits were increased to four per cent to increase liquidity, as NR prices dropped to Rs 60 a kg. However, at current NR prices, the futures can be legitimately taken up or down by Rs 8 on the same day. This has a potential to cause huge distortions in the physical markets as well.
The Rubber Board has already recommended a reduction in the intra-day circuit limits in futures trading to ensure that market manipulation is minimised.