On the one hand, the overall supply and demand pattern of rubber is expected to improve. On the other hand, the current price of rubber is at a low level and there is limited room for decline in the market outlook. Investors are advised to seize the opportunity to place more orders while the current price is still low.
The natural rubber production capacity cycle has a weaker margin to suppress future prices, and the decline in demand has narrowed. The overall supply and demand pattern of rubber is expected to improve. The current price of rubber is in the low range since 2004, and farmers’ willingness to cut rubber and maintenance at low prices has declined. The story of supply-side hype has begun. Improved supply and demand, combined with the current low price of rubber, limited downside in the market outlook, and a certain margin of safety in prices, investors are advised to seize the long opportunities for natural rubber in advance.
Production cycle pressure on prices has weakened
Previously, due to the decline in demand for natural rubber, the supply-side production capacity was released, and the futures price fell all the way down and tended to oscillate at a low level. In the meantime, although prices are falling, we find that there is a certain marginal change in the supply side, and the supply gradually changes from loose to tighter. In terms of production cycle, the growth rate of ANRPC natural rubber planting area has fluctuated around 0% in the past three years. The new planting area is at a historically low level. The suppression of the future price by the production cycle has been reduced compared to the previous margin. In 2019, the area cut by natural rubber is at a high level, but the output has declined. According to ANRPC data, the global natural rubber production from January to July 2019 was 7.039 million tons, which was 7.3% lower than the 7.591 million tons in the same period of 2018. Behind the decline in production, in addition to the disturbance of weather factors, the low price for a long period of time led to a decline in the willingness to tap and maintain, and then caused the spread of pests and diseases to damage the production.
Although the center of gravity of rubber prices has increased in the fourth quarter of 2019, the overall price is still in the low range since 2004. If the slump in rubber prices lasts longer, the logic of the aforementioned decline in production will be more sufficient. If uncertain weather factors are taken into account, the story of the hype of the rubber supply side has already begun.
Demand continues to fall, space is limited
Supply-side capacity continues to be released, and the decline in demand for natural rubber such as automobiles is the main reason for the continuous weakness of natural rubber prices in 2018. However, the above variables currently have expectations of marginal improvement. From the tracked data, from January to November 2019, the year-on-year growth rate of passenger car sales fell by 10.34%, but the sales decline in November continued to narrow slightly. The production and sales of heavy-duty trucks in commercial vehicles are relatively strong. The output of heavy-duty trucks from January to November increased by 4.66% year-on-year, and the sales of heavy-duty trucks from January to November increased by 0.85% year-on-year. The above data reflects the slow improvement in automobile demand, and we tend to believe that the phenomenon of marginal improvement in automobile demand can continue.
We believe that the current safety margin of natural rubber prices is sufficient. It is mainly reflected in the following aspects: First, the consumption of natural rubber in China is mainly imported to Southeast Asia. At present, the price of Thai glue is 36 baht / kg, and the cup rubber is about 34.3 baht / kg. The price is at a historical low level. Secondly, although the center of gravity of natural rubber futures prices has risen, but looking at it for a long time, if the exchange rate factor is taken into account, the current price is still at its historical low range since 2004. Third, from the main contract delivery prices, the RU1905 contract and RU1909 contract delivery prices were 11,400 yuan / ton and 11,130 yuan / ton, respectively, an increase of 450 yuan / ton and 685 yuan / ton from the previous year, and the RU2001 contract will be forthcoming. For delivery, the current price is 12,600 yuan / ton, which is 1,395 yuan / ton higher than the previous year’s delivery price. Fourth, from the perspective of the basis and spread, as the basis narrows, the arbitrage’s suppressive effect on the disk futures price has weakened marginally, and the main contract monthly price spreads have narrowed, compared to the previous cost of moving positions and changing months. It will be reduced accordingly.
Based on the above factors, it is not difficult to find that the current natural rubber futures have a safety margin to go long, and it is recommended to seize the opportunity to place more orders while the price is still low. Specifically, you can choose to enter the market when the main contract is between 12000-12500 yuan / ton, and then wait for the rise in the supply and demand mismatch of natural rubber.
Translated by Google Translator from http://www.cria.org.cn/newsdetail/52529.html