2012 Review and 2013 Prospects of China’s Rubber Market

By Dong Yu, China Logistics Information Center

I Review

1. Rubber resources grew steadily.
According to China Logistics Information Center, China’s rubber resources increased by 8.19 million tons in 2012, up 5.0% YOY – natural rubber grew by 2.96 million tons, rising 4.6% YOY; synthetic rubber, by 5.23 million tons, gaining 5.2% YOY.

1) Output maintained rapid growth.
With new rubber plantations put into production in 2012, natural rubber output for the year grew 8% YOY to 790 000 tons although natural disasters exerted negative impact on producing areas like Yunnan province, where widespread drought has lasted for a long time since the beginning of 2012, and coastal regions, which suffered from rainstorms and typhoons. Synthetic rubber output increased 7.1% YOY to 3.79 million tons in 2012 but the growth rate declined 6% YOY. Monthly output basically exceeded 300 000 tons (except February).

2) Import growth decelerates.
China’s imports of natural rubber rose 3.6% YOY to 2.18 million tons in 2012, with the growth rate down 9.3% YOY. The import volume grew rapidly in the first two months, plummeted in March, rebounded in April to the year’s highest level in June, decreased again in the following four months to the lowest in October, and then increased steadily in November and December.
   As domestic capacity of synthetic rubber has soared in recent years, the growth of imports decelerated in 2012, when the import volume was 1.44 million tons, up 0.5% YOY. Monthly imports increased YOY in February, May, June, July and October.

2. Demand growth slows down.
China’s economic growth decelerated in 2012, curbing rubber consumption. Due to national policies issued in 2011, the domestic auto industry saw a sharp fall in the expansion of output and sales. According to the National Bureau of Statistics of China, the industry produced 20.6 million cars in 2012, growing 6.3% YOY. The tire industry was also influenced and saw a 4.1% YOY decrease in output growth to 4.2% in 2012, producing 891.67 million tires that year including cover tires (radial tire casing, 460.5 million, up 11.4% YOY).

3. Prices showed downward trend.
Domestic rubber prices increased from RMB26 000/t in 2011 to RMB30 000/t in March 2012, dropped to around RMB22 000/t in August and rose slightly to RMB24 000/t at the end of the year, with the average price of 2012 decreasing 5.3% from the level at the beginning of the year and tumbling 24.6% from a year earlier.
   High prices at the beginning of 2012 were attributable to many factors: (1) European Central Bank approved the bailout plan to provide Greece with EUR130 billion. (2)Thailand implemented rubber purchase plans to stabilize rubber prices. (3) The domestic supply fell as harvest time has not yet come, and China decreased the reserve requirement ratio alleviating financial pressure.

II Prospects for 2013

The current decrease in the natural rubber supply is good for maintaining good prices, but over the whole year the prices are still likely to decline as the supply is expected to increase continually in 2013.
   China annually consumes more than 3 million tons of natural rubber, and more than two-thirds of the demand has to be satisfied by imports from Southeast Asia. International natural rubber prices remained low in 2012 because of sagging demand. To stabilize the prices, Thailand, Indonesia and Malaysia – the three largest rubber producers and exporters in the world – have jointly cut exports of natural rubber by 300 000 tons (4% of exports of the three countries) within the six months since October 2012. Propelled by soaring domestic auto sales and high natural rubber prices, China has constructed many rubber plantations since 2005, some of which will see their first harvests in 2013, making natural rubber output increasingly high.
   The world’s capacity to make synthetic rubber and styrene thermoplastic elastomer reached a combined 15.97 million tons in 2011, of which 7.06 million tons were in Asia, accounting for 44% of the total (China, Japan and Korea boast a combined capacity of around 7 million tons, 43% of the total), according to International Institute of Synthetic Rubber Producers (IISRP). As China is still expanding its synthetic rubber capacity, natural rubber prices will be restrained to some extent.
   After 10 years of rapid development, the auto industry’s growth decelerated in 2011 and continued at a slow pace in 2012, intensifying domestic oversupply and forcing auto prices downward continually.. It is expected that auto makers will manage a slight but stable increase in both output and sales volume in 2013.
   Tire industry activity is closely related to macro economic activity in general, and more specifically to the auto and transportation industries. It is estimated to be propelled by the stable economy and by further development of road transportation in 2013, but uncertainties still exist. First, the slow growth of the auto industry curbs demand for tires. Second, tire export conditions are not favorable as the EU issued a “labeling law” after the Sino-US tire tariff case came to a conclusion.
Natural rubber inventory has remained high since the second half of 2012, totaling 300 000 tons and 100 000 tons in the Qingdao Free Trade Zone and the Shanghai Futures Exchange, respectively. Even in private enterprises, the inventory is higher than ever before. There is no doubt that overstock is harmful to prices.
   The world’s natural rubber output grew 3.6% YOY to 10.39 million tons in 2012 but the demand shrank, according to International Rubber Study Group (IRSG).
On the basis of the abovementioned factors, the growth of natural rubber consumption may not catch up with output expansion, and therefore the prices are likely to decrease continually.
   The average domestic price of natural rubber fell 5.3% YOY, according to China Logistics Information Center.