Is rubber bouncing at last?
US investors may be enjoying a Thanksgiving break, meaning many benchmark markets are closed, but that does not mean that trading in all commodities is quiet.
And rubber futures are on a bit of a tear, after hitting a six-year low in Tokyo earlier this month.
China, the top importer of the tyre ingredient, seems to be a big factor in the rally, amid ideas that fears over the world’s second-ranked economy have been overplayed.
These are seen as having played a part in the 23% recovery in Shanghai stocks from their August low.
Rubber rebound
And now rubber – which as an industrial commodity is more sensitive to economic considerations than many other ags, and is indeed dependent to a great extent on Chinese auto demand – seems to reacting too.
In fact, Chinese rubber imports in October were, at 212,190 tonnes, up 18.8% year on year, notable outperformance – the average growth for the first 10 months of 2015 is 3.0%, customs data earlier this week showed.
Shanghai’s best-traded May rubber lot, which hit a contract low of 9,350 renminbi a tonne two sessions ago, closed on Thursday at 10,070 renminbi a tonne, up 3.1% on the day (and up 7.7% from Tuesday’s low).
That fed through into other markets as well.
Tokyo rubber for May earlier closed up 4.2% at 164.70 yen a kilogramme, although in the afternoon session (which counts as tomorrow) profit-taking pulled it back 0.4% to 164.20 yen a kilogramme.
Still, that is well above the 153.00 yen a kilogramme set three weeks ago – the lowest for a benchmark contract since July 2009.
‘Pronounced supply response’
Supply fundamentals appear to be having some say in the market revival too, with weaker prices, at last, appeared to be acting in earnest to curtail production.
World production in the first 10 months of the year was down 1% year on year, according to the Association of Natural Rubber Producing Countries (ANRPC), who members account for 90% of global output.
“The low rubber prices are meanwhile provoking a pronounced supply response, which makes it more likely that the market will slide into deficit,” Commerzbank noted.
“Contrary to what was previously expected, the ANRPC now also envisages declining production for the year as a whole, especially as the El Niño weather phenomenon is posing an additional burden on production.”
‘Hampered competitiveness’
Palm oil futures have already recovered from their own six-year low, set in August at 1,863 ringgit a tonne in Kuala Lumpur.
London-listed producer Anglo-Eastern Plantations issued a caution to bulls last week, as it noted that prices, after an initial recovery, and not improved “significantly despite El Nino weather phenomenon which is expected to reduce [palm fruit] production in the coming months”.
“The low crude oil prices have hampered the competitiveness and development in biodiesel resulting in lower demand for crude palm oil,” which, like other vegetable oils, can be turned into biodiesel.
“The palm oil price outlook for the [remainder] of the year remains weak.”
Flat prices ahead?
On Thursday, plantations giant Sime Darby had a crack at forecasting palm oil prices too, seeing prices averaging 2,250 ringgit a tonne for the year ending June 2016.
Given that Kuala Lumpur futures stood at 2,327 ringgit a tonne on Thursday as of 09:00 UK time (03:00 Chicago time), a gain of 1.2% on the day, that was not too reassuring.
That said, the group achieved an average of 2,088 ringgit a tonne for palm oil in the July-to-September period, the first quarter of its financial year, suggesting that the average price for the October-to-June period will be higher than the 2,250-ringgit=a-tonne year average.
(A simple average would suggest an average of a bit over 2,300 ringgit a tonne, ie not far from current futures values.)
Exports slow
On a slightly downbeat note, Intertek Testing Services on Wednesday pegged Malaysian shipments for the first 25 days of November flat month on month, implying a recent slowdown after exports were running 4.3% higher as of November 20.
Rival cargo surveyor SGS said exports had fallen by 0.8% month on month as of November 25, compared with a 5.6% rise recorded at November 20.
Still, better for prices, in China, a major palm oil importing country, May futures on the Dalian exchange gained 1.6% to 4,526 renminbi per tonne.
‘Still not cheap’
In grain markets, Sydney wheat for January closed down 0.4% at Aus$277.00 a tonne, attempting to underpin the competitiveness of Australian supplies which, with shipping rates so low, are opening up distant origins for the country’s bread-and-butter Asian import markets.
France, for instance, was reported this week as sending its first wheat cargo to Indonesia in seven seasons.
The premiums over Sydney futures to Kansas City and Paris futures “did fall Aus$4-5 a tonne yesterday,” Tobin Gorey at Commonwealth Bank of Australia said.
However, Australian wheat “is still not cheap even with those falls”.
