Asian natural rubber prices fall 30%
 

Asian natural rubber prices fall 30%

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Asian natural rubber prices fall 30%

Asian natural rubber prices fall 30%

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    Asian natural rubber prices fall 30% Asian natural rubber prices fall 30% Presentation Transcript

    • © 2013 Platts, McGraw Hill Financial. All rights reserved. Asian natural rubber prices fall 30% on year on glut in Chinese supply Singapore, April 7, 2014 Additional media contact: Elizabeth Catalano at elizabeth.catalano@platts.com or +44 207 176 6024.
    • Asian natural rubber prices plummeted by around 30% • Asian natural rubber prices plummeted by around 30% year on year in the first quarter, as new production and a surge in imports left China with a persistent glut in supply. • China accounts for about 35% of global demand for natural and synthetic rubber, used mainly to make tires 2
    • Natural rubber prices in Asia fall 3
    • Asian natural rubber prices plummeted by around 30% (cont…) • Front-month Asian Technically Specified Rubber, or TSR-20, prices averaged $1.98/kg FOB Singapore in Q1, down 33% from $2.94/kg from a year ago, Platts data shows. • Thai Ribbed Smoked Sheet 3, or RSS 3, prices fell 29% on the year to average $2.25/kg FOB Singapore in Q1, from $3.15/kg. • Both grades have been on a downtrend since Platts started assessing natural rubber in October 2011 4
    • Platts Petrochemicals Analytics: Shale Gas to Polyethylene 5 Click here to see more Or visit www.platts.com/ppa
    • Natural rubber prices affect synthetic rubber • Front-month TSR-20 price fell to a record-low of $1.80/kg FOB Singapore on February 27, while front-month RSS 3 dropped to its historic low on February 6, at $2.05/kg FOB Singapore. • The falls in natural rubber prices have also weighed on synthetic rubber since both products compete as feedstock for tire manufacturing. • Average Q1 Northeast Asian 1502 Emulsion Styrene Butadiene Rubber prices fell 22% year on year to $1,835/mt CFR, from $2,355/mt, while Southeast Asian 1502 ESBR prices were down 22% on the year to $1,840/mt CFR, from $2,371/mt. 6
    • Rubber supply outpaces demand • Q1 Asian natural rubber prices have fallen sharply on the year as supply has outpaced demand, industry sources said in March. • Part of the problem is that natural rubber trees planted during 2005-2008 -- when prices were healthier -- are now ready to be tapped, said a China-based trade source. • In Asia, the top three natural rubber producers are Thailand, accounting for 32% of Asian supply, Indonesia (27%) and Vietnam (8%) according to data from Commerzbank published February. 7
    • China's imports of natural rubber up nearly 67% • Moreover, Chinese natural rubber consumption in 2014 is expected to be capped at 4.02 million mt, up 5% on year, due in part to a slowing Chinese economy and tightening liquidity, according to a report published February by Macquarie. • China's imports of natural rubber surged to an all-time high of 347,048 mt in December, up nearly 67% on year, data from the General Administration of Customs in Beijing showed, after Thailand temporarily scrapped an export duty on rubber to appease farmers. • This pushed full year imports to 2.47 million mt in 2013, up from 2.18 million mt in 2012 and 2.10 million in 2011. • And imports showed no sign of slowing down in January, hovering close to the record level at 342,903 mt, but has since dropped 44% on the year to 191,161 mt in February. 8
    • Rubber used in commodity-financed deals • One explanation is that Chinese firms have been using rubber as a means to import low-cost foreign financing which has led to far more stockpiles than users need, sources said. • A commodity-financed deal requires an offshore bank to issue a letter of credit against physical commodity stocks either in transit or held in bonded warehouses, which can be cashed onshore into local currency. 9
    • Click below to download the PDF 10 Click here to download
    • Qingdao stocks • Total rubber stocks, including natural rubber, styrene butadiene and compound rubber, at warehouses in Qingdao, northeastern Shandong province, have surged 40% over late-October to mid-March from 250,000 mt to 353,800 mt, sources said. • This level remains close to the record high of 371,100 mt on April 26, 2013. • Stocks in Qingdao are the source of about half of China's tire output. 11
    • Qingdao stocks (cont..) • While it is normal for stocks to rise before the dry winter season, which runs from February-April in Thailand and Malaysia and February-May in Indonesia, users have been buying cheap rubber on a hand-to- mouth basis over the past three years, a Singapore-based trade source said. • "Buyers don't need to [stock up]; they just wait and rely on cheap rubber when they need to from traders in Qingdao," the source said. • The record-high stock levels have triggered an unusual contango in the market since January during the low production season. • "It is low season now in Thailand and given the big contango, it seems like the market is pretty weak," a second Singapore-based trade source. 12
    • Is there a downward spiral? • If Chinese natural rubber prices continue to fall, lending institutions will be under pressure to unwind these deals as quickly as possible by liquidating the inventories, leading to a downward spiral. • "Some traders in China are going to clear their stock out and it has led to a price drop in China and other parts of Asia," said a producer. • Traders could however, bide their time before liquidating the stocks as they remain profitable due to a still positive Chinese yuan and US dollar interest rate differential, said a third Singapore-based trade source. 13
    • Natural rubber market to remain under pressure • Going into the second quarter, the industry is expected to remain under pressure, the first Singapore-based trade source said. • "The natural rubber market is still bearish; the price keeps going down with some rebounding. Tree holders, rubber factories, traders and tire factories will face various difficulties, especially the traders. Some may become stronger, many others may quit." 14
    • Stay connected to the markets 15
    • © 2014 Platts, McGraw Hill Financial. All rights reserved. 16