KUCHING: The impending El Nino will not be a mear term catalyst to a hike in rubber prices, says the research wing of Kenanga Investment Bank Bhd (Kenanga Research).
According to the World Meteorological Organisation (WMO), sea surface temperatures have reached El Nino thresholds but atmospheric indicators remain neutral, hence El Nino is not considered to have started.
WMO places the odds of El Nino occurring at 60 per cent between June and August and 75 to 80 per cent between October and December.
A moderate strength El Nino is anticipated, it predicted.
“Generally, El Niño is known to cause droughts in Australia and Southeast Asia and floods in the US and South America, affecting supplies of crops including rubber.
“Among the three past El Niño events, two have caused rubber prices rising more than 50 per cent. The exception in 2006 was most likely due to the weak intensity of El Niño. Despite the high probability of El Niño occurrence, we do not view this as a near term catalyst to rubber prices.”
It said supply in rubber market has been outpacing demand since 2011, helping to maintain rubber prices.
“According to The Rubber Economist, it is expected to remain in surplus for another three years causing gluts of 652,000 tonnes, 483,000 tonnes and 316,000 tonnes in 2014, 2015 and 2016, respectively.
Additionally, China is expected to register a gross domestic product growth rate of 7.5 per cent in 2014, which is the slowest since 2002. This slowdown, Kengna Research said, will mean a slowdown in rubber demand – as China is the world’s biggest rubber consumer – hence casting a shadow on the price.”
Industry players’ views are in line with the firm’s, which do not expect major impact from El Nino on rubber prices.