* Natural rubber imports to hit a record high of 400,000 tonnes
* Demand seen at record over 1 million tonnes
* Drop in local prices may dampen rubber output, spur imports
By Rajendra Jadhav
MUMBAI, Aug 14 (Reuters) - A revival in India's auto industry could lift imports of natural rubber for making tyres by a quarter this fiscal year, which would take inbound shipments to a record and may provide some support for global prices languishing at multi-year lows.
International prices of natural rubber have fallen by more than a quarter this year because of worries about weak economic growth in top consumer China and oversupply in the top Southeast Asian producers, Thailand and Indonesia.
"The growth in imports will continue in coming months," George Valy, president of the Indian Rubber Dealers' Federation, told Reuters. "Imports could rise to 400,000 tonnes this year as prices are lower in the world market and demand is rising."
India, which buys most of its natural rubber from Thailand, Malaysia, Indonesia and Vietnam, imported 325,190 tonnes in the last fiscal year to March 31.
Shipments in the first four months of the current fiscal year jumped nearly 48 percent from a year before to 133,789 tonnes.
Tyre makers are the biggest consumers of natural rubber and they are getting a boost as Indians buy more cars and other vehicles amid optimism about the economy under the new government of Narendra Modi.
Car sales grew for the third month in succession in July and are expected to rise between 5 and 10 percent this fiscal year, according to the Society of Indian Automobile Manufacturers.
"First signals of economic turnaround are in sight with the car industry registering growth in the last two months," said Raghupati Singhania, managing director at JK Tyre & Industries Ltd.
"Commercial vehicles are also showing signs of improvement. This augurs well for the tyre industry and coming quarters should see improved performance in terms of volumes and profitability."
India is the world's fifth-largest natural rubber producer but its imports have quadrupled in the past six years due to the rapid expansion of its auto industry.
Rajiv Budhraja, director-general of industry body Automotive Tyre Manufacturers Association, estimates natural rubber consumption could hit a record above 1 million tonnes in 2014/15, up from 981,520 tonnes last year.
"In the second half of the year, we are expecting higher growth in tyre sales than in the first half due to festivals," Budhraja said. India celebrates the religious festivals of Dussehra and Diwali in the next two months, when buying of vehicles is considered auspicious.
Budhraja expects tyre sales in the truck and bus segment to rise by 3-4 percent in the current financial year, while sales in the two-wheeler and passenger car segment could grow 6-8 percent.
The rubber price trend has boosted margins at tyre makers such as CEAT Ltd, Apollo Tyres, JK Tyre and Industries, MRF Ltd and Balkrishna Industries , as natural rubber accounts for more than 40 percent of the cost of a tyre.
Despite growth in the Indian market, the near-term support for global rubber prices could be limited since they are dominated by demand from China, which has imported 2.45 million tonnes of natural and synthetic rubber so far this year.
In addition, Thailand, which produces around a third of the world's natural rubber and exports around 90 percent of its output, is sitting on huge private and public stocks put at half a million tonnes at the end of 2013, including 200,000 tonnes bought by the government to support the market in 2012/13.
Thailand's military government is now trying to encourage farmers to cut down more rubber trees to restrict supply and help shore up prices.
However, the predicted surge in Indian demand could spur rubber imports and help prices more over the longer term.
Tracking the drop in global prices, Indian natural rubber hit a 4-1/2-year low of 132.5 rupees per kg on Tuesday.
That is still 15-20 percent dearer than overseas prices, but it is not enough for many farmers.
"Indian farmers are not interested in tapping due to lower prices," said N. Radhakrishnan, a dealer and former president of the Cochin Rubber Merchants Association. "They are not making money. This year production could drop by 10 to 15 percent if prices remain at the current level."
India is forecast to be the world's third-largest car market by 2018, up from sixth now, according to IHS Automotive. "With the rapid growth in the auto industry, the demand-supply mismatch will increase," Valy of the rubber federation said.
And as that happens, tyre makers could be forced in coming years to snap up more cargoes overseas. (Additional reporting by Aditi Shah; Editing by Alan Raybould)