China’s Natural Rubber Output Grew 1.5% in 2014

By Dong Yu, China Logistics Information Center

Imbalance between supply and demand continued to trouble China’s natural rubber industry in 2014. The growth of output decelerated, but soaring imports at the beginning of the year flooded the market. Furthermore, domestic demand for natural rubber remained anemic, and profits tumbled due to factors like America’s anti-dumping and anti-subsidy investigation of China’s tires, a sharp drop of international crude oil prices, decreasing sales of domestic heavy trucks and updated criteria for compound rubber. Rubber prices dropped below cost to around RMB12 000/t, down RMB30 000/t from the peak of RMB43 000/t in 2011.

1. Performance in 2014

1.1 The growth of newly-increased resources slowed down
In 2014, newly-increased natural rubber totaled 3.46 million tons, up 4.3% YOY, with growth down 7.4 percentage points from a year earlier.
1) Output growth decelerated greatly
China produced 850 kt of natural rubber in 2014, up 1.5% YOY, with growth down 5 percentage points YOY. In contrast, synthetic rubber output grew 10.6% YOY in the first eleven months of the year, to 4.84 million tons.
2) Import growth also slowed
The import of natural rubber rose 5.6% YOY (with growth down 7.9 percentage points YOY) to 2.61 million tons in 2014, seeing the fastest growth of 36.5% at the beginning of the year. But because of weak domestic demand and high inventories, the increase decelerated later, reaching a negative 18.7% in November, rock bottom for recent years. For synthetic rubber, imports totaled 1.48 million tons, down 2.8% YOY.
1.2 Consumption remained sluggish
Among the main downstream industries, the tire industry faces overcapacity and high inventories. In 2014, the capacity to make all-steel tires increased by 15 million units, and that for semi-steel tires grew by 150 million units. Most tire enterprises increased output rates at the beginning of 2014, increasing inventories, leading many small and medium-sized tire firms to reduce operating rates below 70%, seriously reducing demand for natural rubber.
China’s largest tires overseas market, America, consumes around one third of China’s exported tires. Therefore, its anti-dumping and anti-subsidy investigation on China-made tires for passenger vehicles and light trucks has hit China’s tire industry hard.
China produced 23.72 million vehicles and sold 23.49 million in 2014, up 7.3% YOY and 6.9% YOY, respectively, with growth down 7.5 and 7 percentage points YOY. The output of commercial vehicles declined 5.7% YOY to 3.80 million; sales volume declined 6.5% YOY to 3.79 million. The manufacture of commercial vehicles, especially heavy trucks, represents huge demand for natural rubber. However, since the second half of 2014, sales volume of heavy trucks has decreased, losing nearly 30% by December, and the volume for the whole year shrank 3.9% YOY to 744 000, weakening domestic demand for natural rubber.
1.3 Prices slid continually
The average price of natural rubber fell faster in 2014, sliding 26.9% during the year, 4.8 percentage points worse than last year’s fall; synthetic rubber prices fell 6.1% YOY.
By quarters, natural rubber prices plummeted at the beginning of the year owing to soaring imports and rising inventories, and then they rebounded slightly (MOM) in the second quarter and fell again in the third quarter, even tumbling past RMB12 000/t. In the last three months, China took a series of measures to combat sharp price fall, making the prices fluctuate modestly at low levels.
At Hainan E-commerce Center, the average price of SCRWF fell RMB6 090/t YOY to RMB13 302/t; at Yunnan E-commerce Center, SCRWF was down RMB4 433/t YOY to RMB13 318/t; in Shanghai, it was down RMB6 459/t YOY to RMB13 528/t, with the top price reaching RMB17 900/t, and the bottom price reaching RMB10 800/t; in Qingdao, it was down RMB6 391/t YOY to RMB13 438/t, with the top price reaching RMB17 900/t, and the bottom price reaching RMB10 700/t; in Tianjin, it was down RMB6 393/t YOY to RMB13 628/t, with the top price reaching RMB18 000/t, and the bottom price reaching RMB10 900/t.
In the main international natural rubber-producing areas, Thailand’s RSS3 average price went down US$801/t YOY to US$1 979/t, with the highest and lowest prices hitting US$2 480/t and US$1 530/t, respectively; SIR20 in Indonesia was down US$782/t to US$1 728/t US$1 415/t; RSS3 at Singapore Futures Market was down US$820/t to US$1 960/t.

2. Prospects in 2015

2.1 Supply
The main natural rubber-producing countries saw a 3% YOY decrease in total rubber output in 2014, declining to 10.84 million tons. According to the International Rubber Study Group, the global surplus of natural rubber in 2015 will be 202 kt, dropping 46% from 371 kt in 2014. In China, continually falling prices have curbed output growth, which was around 3%-12% from 2010 to 2013, far exceeding 2014’s 1.5%.
2.2 Demand
Last year, the European Union sold more than 12.55 million vehicles, up 5.7% YOY; America sold 16.50 million vehicles, the highest number since 2006. The recovery of the auto industry stimulated tire production and marketing in Europe and America. In 2014, the Europeans bought 197 million passenger vehicle tires, up 2% YOY, and Americans bought 310 million tires, up 4.7% YOY. Global demand for rubber is expected to grow, benefiting from vibrant European and American auto markets.
The domestic tire industry performed stably in the first three quarters of 2014. However, things were getting bad in the last three months. For October, tire output declined 17% YOY. In 2015, tire enterprises have to confront even more difficulties, like structural surplus, especially the surplus of low-end products. New compound rubber criteria and an adjustment of the rubber import tariff could promote consumption of domestic rubber and prevent further price decreases, but they would raise costs and pose the threat of overall negative impacts.
At the end of 2014, a large number of projects regarding railways, roads and other infrastructure were approved, ensuring some demand for natural rubber from the heavy truck market. But the demand is forecast to grow only modestly in 2015.
In conclusion, in spite of shrinking surplus and other positive signs, China saw no substantial improvement in the domestic demand for natural rubber. Rubber prices are forecast to stay low.