Higher global rubber prices here to stay, says Commerzbank

Rubber futures, while down more than 12% in Singapore from a three-year high reached a month ago, are poised to remain above 200 cents per kg – with the potential for price upsurges, Commerzbank said.

The bank acknowledged the pressure on prices from the prospect of a resumption in rubber tapping in Thailand, the top producer and exporter, after disruptions since last autumn from heavy rains.

“The still-high Chinese rubber stocks also have a dampening effect on rubber price development,” Commerzbank said in a report, with the country stockpiling the tyre ingredient for its huge car industry.

The rubber import story in India has already seen a few basic changes over the past few months. Till now, the domestic rubber price used to be higher which encouraged industries to import latex in huge numbers. A trend reversal is happening now. The overseas price of rubber is now costlier than Indian prices. Hence import of rubber has become non-viable.

However, a shortfall in the Northeast Monsoon threatens to reduce production. “Due to demonetisation there has been a 30-40 per cent fall in tyre sales in the country. This may slow down the sector. But now Indian rubber prices are cheaper and hence it will be good for growers. The long term story of rubber is intact,” said Tomy Abraham, President, Indian Rubber Dealers Federation a few weeks ago.

Natural rubber production increased 15 per cent to 60,000 tonnes in October and the consumption grew four per cent to 86,000 tonnes, according to Rubber Board data.

Globally, China has brought in hope. Indeed, vehicle sales in China, where automotive production topped 3m vehicles in November for the first time, will expand by a further 5% this year, according to the country’s main car industry association.

However, this China forecast increase represents a “positive outlook for rubber demand” at a time when supplies in many other countries are proving less robust

Indeed, stocks for delivery against Tokyo-traded rubber fell to 1,489 tonnes as of February 20, the lowest since August 2010 and down 79% year on year.

And long-term prospects for a return in natural rubber to a world production surplus look poor, with the Rubber Economist seeing deficits both this year and next, after an output shortfall estimated at 151,000 tonnes last year.

The Association of Natural Rubber Producing Countries (ANRPC), whose members account for some 96% of global production, forecasts a shortfall this year of 350,000 tonnes.

“A good year ago, natural rubber in Singapore was trading at only just over 100 US cents per kilogramme – its lowest level since September 2003 – following years of market surpluses,” Commerzbank said.

However, assuming the market indeed sees the deficits Rubber Economist and ANRPC forecast, “prices above 200 cents per kilogramme are here to stay for quite some time”.

Given tappers in major South East Asian producing countries are approaching the so-called “wintering” period of low output, “this should additionally give the price an additional lift at least temporarily,” the bank said.

In India rubber is still priced lower than imports. Even though the prices gained to touch Rs. 144 per kg, prices are expected to resume the downtrend going ahead, and is expected to settle at around  Rs.138 per kg as the next key level in rubber.

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