Asian natural rubber prices plummeted by
• 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
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
• 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
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Natural rubber prices affect synthetic
• 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
• 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.
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.
China's imports of natural rubber up
• 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.
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
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• 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
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.
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
• "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
• 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.
Natural rubber market to remain under
• 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."