By A Saj Mathews
The upward trend in natural rubber prices since the beginning of the New Year is continuing in the NR market across the globe. Natural rubber prices in India has touched the Rs 157 a kg mark of late, a two-and-a-half-year high. This is on account of limited supplies and tracking gains in overseas markets, resulting mainly from supply disruptions in Thailand, the top producer, caused by devastating floods. Uptrend in the Chinese demand also adds to the positive sentiments in the NR market.
Latest trends
The latest price rise is likely to increase the raw material cost of tyre makers, thereby putting pressure on their profitability. Natural rubber accounts for over 40% of the cost of a tyre.
The spot price of the most-traded RSS-4 rubber at the Kottayam, India’s major NR market in the top producing southern state of Kerala, has touched Rs 157 a kg ($ 2.35), the highest since the second half of year 2014. Meanwhile, the international prices are ruling higher at Rs 163.33 a kg ($2.52)
Benchmark TOCOM rubber futures rallied to their highest in nearly four years, boosted by supply concerns after flooding hit a major rubber-producing area in Thailand. Rubber, the main economic crop of Thailand, will not survive more than 20 days of flooding, reports say.
The national rubber authority of Thailand has said recently that output in 2016-2017 would be about 10% lower because of the floods. Thailand will lose around 10% of its rubber output in the 2016-2017 crop year due to flooding, a senior industry official says. It is against this backdrop, global natural rubber prices have risen.
Rubber dealers in India say that, in the wake of the rise in prices, the domestic farmers are holding the stocks expecting further increase in prices. Meanwhile, the Indian Rubber Board is expecting a boost in NR exports in the backdrop of international prices ruling higher. The Board expects export to the tune of 5,000 tonnes this year as against a meagre 200 tonnes last year.
Natural rubber prices registered a good start in the beginning of 2017 with an average 10% growth across key NR markets, in spite of the price decline to US$1.00 per kg during early last year. Throughout January 2017, the rubber market has improved and was supported by favourable market fundamental in supply-demand and other external factors, say the latest report of Association of Natural Rubber Producing Countries (ANRPC).
ANRPC report
Supply of NR by ANRPC member countries has declined with a negative annual growth at 8.4%. The tight supply was attributed to production disruption in southern Thailand, as major producing provinces were badly hit by severe floods during January 2017 and the commencement of early wintering season in major NR producing countries, says Dr. Nguyen Ngoc Bich, Secretary-General, ANRPC in the Association’s latest report.
Consumption of NR witnessed a slowdown to 572,000 tonnes compared to 653,000 tonnes recorded in January 2016, mainly due to low economic activities in China in conjunction with Lunar New Year celebration. The notable uptrend of NR prices at prevailing rates was also attributed to the Japanese yen devaluation against the US dollar and improved world economy outlook by IMF based on its World Economic Outlook released recently.
Production scenario
Based on the actual figures up to November and preliminary estimate for December, ANRPC member countries produced 10.746 million tonnes of NR in 2016, down 2.7 per cent as compared to previous year. Further decline in 2016’s production was attributed to downward revision made by Vietnam, India and Malaysia on the respective country’s output.
While production grew in four member countries of ANRPC, namely Indonesia (0.4%), Vietnam (1.5%), India (7.8%) and Cambodia (17.3%) for the year 2016, five member countries of ANRPC, Thailand (-6.5%), China (-2.5%), Malaysia (-10.0%), Philippines (-0.4%) and Sri Lanka (-10.3%) recorded a fall in production.
However, production by ANRPC member countries is expected to grow by 4.4 per cent, amounting to 11.222 million tonnes during 2017, year-on-year basis, with anticipated tapping area amounting to 9.116 million hectares. Most countries are expected to have an upsurge in production: Thailand (4.7 per cent), Vietnam (6.7 per cent), China (8.5 per cent), Malaysia (4.5 per cent), India (4.8 per cent), Cambodia (37.2%), Philippines (7.8 per cent) and Sri Lanka (6.9 per cent). On the other hand, Indonesia is the only country which forecasts a fall in production from 3.158 million tonnes in 2016 to 3.150 million tonnes.
Based on preliminary estimate, production fell by 8.4 per cent to 922,000 tonnes during January 2017 compared to the same period in a year ago. The production decline was mainly due to floods in southern Thailand which badly affected the country’s output while most NR producing countries have entered into an early wintering season.
Despite production declines during January 2017, the production in first quarter of the year 2017 is expected to grow marginally at 0.2 per cent, amounting to 2.466 million tonnes, year-on-year basis. Also, the production is forecast to increase to 746,000 tonnes during April 2017, up 9.9 per cent from the same period in 2016. Table 2 shows monthly figures of production and the figures anticipated during the first 4 months in 2017.
Consumption scenario
ANRPC members consumed 8.042 million tonnes of NR in 2016, up 5.3 per cent against 2015 as per actual figures up to November and preliminary estimates for December. About 65% of the global demand of NR were consumed by ANRPC member countries.
China and India, the two major NR consumers, recorded 5.911 million tonnes of consumption in 2016, an increase of 238,000 tonnes from previous year.
During 2017, ANRPC member countries are expected to witness a consumption growth of 1.8 per cent, amounting to 8.189 million tonnes against 2016. China is expecting to consume 4.890 million tonnes of NR and India will consume 1.060 million tonnes during the year. Other ANRPC member countries are expecting a positive growth in consumption except Malaysia. Other observation has shown that consumption growth by major NR exporting countries are likely to grow faster than China and India.
Based on preliminary estimates for January 2017, consumption by ANRPC recorded a lower volume at 572,000 tonnes during January 2017 as compared to 653,000 tonnes of the same period a year ago. However, the consumption is expected to grow by 2.2 per cent to 1.943 million tonnes during the first quarter of 2017. Based on forecast figures, the consumption of NR is anticipated to fall by 0.7 per cent in April 2017.
NR exports and imports
Total exports volume of NR registered by ANRPC member countries during 2016 was 8.761million tonnes, down 3.0 per cent on year-on-year basis. This is based on actual figures up to November and preliminary estimates for December. Volume of NR exported to China in the form of compound rubber and mixture rubber are included.
According to ANRPC, exports among ANRPC member countries are expected to grow at 8.985 million tonnes, up 2.6 per cent in 2017 compared to a year ago. Positive growth in exports are anticipated in most ANRPC member countries except Vietnam which may record a fall by 4.3 per cent during 2017.
In January 2017, exports grew 3.1 per cent to 705,000 tonnes, as compared to January 2016. Anticipation for a slowdown in exports of NR during first quarter of 2017, down 2.7 per cent to 2.111million tonnes against the same period in previous year. However, exports are expected to increase by 3.0 per cent to 760,000 tonnes in April 2017. This is based on the forecast figures given for the month.
Total imports of NR by ANRPC member countries recorded 6.129 million tonnes, up 1.9 per cent during 2016 compared to the previous year. This is inclusive of NR imported into China in the form of compound rubber. During 2016, Malaysia is the only country which witnessed a fall in imports of NR — down 5.2 per cent to 925,000 tonnes as compared 2015. While there was a decline in imports by Malaysia, China imported 4.151 million tonnes of NR to the country, up 1.2 per cent from the previous year. Also, India imported 460,000 tonnes of NR, up 2.2 per cent compared to a year ago.
Imports of NR by ANRPC may record lower imports volume, from 6.129 million tonnes in 2016 to 6.068 million tonnes during 2017. While imports may fall by 7.4 per cent in Malaysia, 8.7 per cent in India, 23.1% in Vietnam and 7.4 per cent in others, China, the world largest importer, is expected to import 4.304 million tonnes of NR, up 3.7 per cent during 2017 compared to previous year. (See also Rubber Trends).
What is in store?
Apparently, continuous improvement has been observed in the prices of NR across key markets since December 2016. In January 2017, prices of block rubber further improved by 13.5% in Kuala Lumpur and 15.3% in Bangkok from previous month. In the case of sheet rubber, price of RSS 3 rose by 16.7% in Bangkok and RSS 4 rose 9.1 per cent in India.
Rubber prices during January 2017 saw upward trend despite a sharp fall in crude oil price early in the month. Crude oil price has stabilized around US$50. As reported by the International Energy Agency (IEA), crude oil price soar was attributed to compliance made by OPEC with its agreed output cut in January 2017. Furthermore, IEA also adds that with such compliance levels maintained by OPEC, the oil glut could be reduced by 600,000 barrels per day (bpd) in the next six months.
In the World Economic Outlook released by IMF in January 2017, it has retained its earlier prediction of global economy growth at 3.4 per cent in 2017. The brighter economy outlook in advanced economies and emerging markets & developing economies at 1.9 per cent and 4.5 per cent respectively in 2017 could create some positive sentiments to the global market, especially NR industry.
In short, supply concern caused by early wintering season and floods in Thailand has attributed to negative growth in production by ANRPC during January 2017 at 8.4 per cent. The uptrend of NR prices during January 2017 was mainly supported by the strong market fundamentals in NR market and partly by the Japanese yen devaluation and improved economy outlook by the IMF.
