Tokyo rubber futures prices, which set the global trend, fell last week to their lowest level since 2009, as concerns about oversupply and weak demand from top consumer China sparked heavy selling by speculators.
A slowdown in demand from China, one of the biggest consumers of rubber, along with oversupply in the global markets from countries such as Thailand, sent international rubber prices spiralling down in the last one year.
Another reason is that in Indonesia, the world’s second-largest natural rubber producer, demand has not matched the surge in supply over the past three years. This has pushed down rubber prices, with rubber futures plunging 28 percent this year to the lowest level in nearly five years, say a media report.
Thailand, the world’s biggest producer, will expand the area it will clear of aging trees by 33 percent to 64,000 hectares a year in the season starting in October, Prasit Meadsen, acting director of the Office of the Rubber Replanting Aid Fund, said Sept. 4. The program, to be implemented for seven years, will cut supply by 27,000 tons annually, he said.
The country meanwhile plans to unload all rubber it holds in state stockpiles, starting with 100,000 tons it already agreed to sell and a similar-sized shipment soon, Chanachai Plengsiriwat, managing director of Thailand’s Rubber Estate Organization, said Sept. 2.
More than 10,000 rubber farmers in Thailand, based mostly in the south, are preparing to launch protests against the government and demand it announce measures to help them counter a slump in prices to five-year lows. Rubber farmers threatened to stage protests last month too, but have so far not acted upon it. Such protests would infringe the martial law that prevails in Thailand since the army took control of the country in May.
The price of Thai unsmoked rubber sheet (USS3), which farmers sell to factories, was at 45-49 baht per kg last week, a far cry from the record 180 Thai baht ($5.6) per kg farmers earned when benchmark smoked rubber sheet (RSS3) surged to an all-time high of $6.40 per kg in 2011.
The global surplus will narrow to 202,000 tonnes next year, according to an Aug. 13 e-mail from the International Rubber Study Group.
Inventories worldwide will reach 3.79 million tonnes by the end of 2014 and 4.33 million tonnes by 2015, according to The Rubber Economist Ltd. Reserves will increase to the equivalent of 3.9 months of consumption at the end of 2014 from 2.5 months a year earlier, the London-based independent researcher said by e-mail on Aug 15.
In India, the world’s fifth-biggest producer, the spot price of the most-traded RSS-4 rubber (ribbed, smoked sheet) at the Kottayam market in the top producing Kerala state fell by 300 rupees to 12,100 rupees per 100 kg on Wednesday, the lowest since Nov. 28, 2009. “Tyre makers are increasing imports and reducing local purchases. They are getting rubber at quite a low price in the world market,” George Valy, president of the Indian Rubber Dealers’ Federation, told Reuters.
Consequently, tyre stocks have been on a roll last week, rising between 10% and 23%, after getting a tailwind from lower raw material prices. This has kindled hopes of better earnings growth in the next few quarters because raw material costs comprise nearly three-fourths of the production cost of a tyre.