Natural Rubber Market in China in 2015

By Dong Yu, China Logistics Information Center

According to statistical estimates made by China Logistics Information Center, the total new resources of natural rubber in China amounted to 3.56 million tons in 2015, an increase of 2.6% over the previous year and the growth was 1.7 percent points slower than the previous year.

Downturn of output

Natural rubber in China featured oversupply and sustained falling prices in 2015. The profit margins of rubber plantation owners became smaller, and there were even losses. The rubber tapping frequency in some areas was reduced. In the second quarter, in particular, due to the sustained price decline, the output of natural rubber once dipped lower than in the same period of the previous year. The situation made a turn for the better in the third quarter, and the output of natural rubber became normal and got onto a high side. In the whole year of 2015 the output of natural rubber in China was for the first time in recent years lower than in the previous year. According to preliminary statistics, the total output of natural rubber was around 820 kt in 2015, a drop of around 4.3% from the previous year.

Sustained increase of import

The import of natural rubber to China was low at first and higher later in the whole year of 2015. The import volume in the first half of the year was a little higher than in the same period of the previous year. It started drastic growth in the third quarter, and the growth margin was kept at over 25%. The growth margin came down in the fourth quarter but was still relatively high. According to customs statistics, the import volume of natural rubber was 2.74 million tons in 2015, an increase of 4.8% over the previous year.

Sustained slack consumption

The status of major downstream sectors in China was as follows. Tire capacity was in surplus and the inventory built up. The situation was quite unfavorable. Having developed rapidly for over ten years, there was already serious structural surplus in the tire sector. Undifferentiated medium- and low-grade tires were in surplus whereas there was still opportunity in high-end and “green” tires. The inventory was usually equal to the output of 1.5-2 months. The tire producers constantly reduced operating rates, dropping to around 60% in 2015, nearly 10 percent points lower than in the previous year.
Moreover, there were hardly any bright spots in the consumption of automobiles. Slow growth became the norm in the automotive sector. According to data from China Association of Automobile Manufacturers, the output of automobiles in the whole year of 2015 was 24.5033 million pieces and the volume sold was 24.5976 million pieces, an increase of respectively 3.25% and 4.68% over the previous year, and the growth was 4.01 percent points and 2.18 percent points slower than in the previous year. The output of passenger cars was 21.0794 million pieces and the sales volume was 21.1463 million pieces, an increase of 5.78% and 7.30%. The output of commercial vehicles was 3.4239 million pieces and the sales volume was 3.4513 million pieces, a drop of 9.97% and 8.97%. As for commercial vehicles, the market for heavy-duty trucks closely related to the demand for natural rubber was still like skating on thin ice. Starting from the second half of 2014, the sales volume of heavy-duty trucks peaked, but the reduction margin was quite small and the sales volume for the whole year of 2014 was 3.9% lower than in the previous year. The reduction grew steadily in 2015 and even approached 50% in February. The total sales volume of heavy-duty trucks in the whole year of 2015 was 0.5468 million pieces, a drop of 0.197 million pieces and 27% from the previous year. The slack sales of commercial vehicles and heavy-duty trucks dealt a heavy blow to the demand for natural rubber.

Decline of market prices

The market price of natural rubber in China in 2015 continued the decline of the previous year. Except for May, which saw a slight pickup, market prices in other months were all lower than the previous month, especially in November when the single month’s reduction reached 10 percent points. According to market monitoring by China Logistics Information Center, the average price of natural rubber in 2015 was 17.96% lower than in the previous year. Figure 2 shows the price index trend of natural rubber in China in 2015.
To be more specific, the average price of SCRWF at Yunnan E-Commerce Center was RMB12 373/t, a drop of RMB745/t from the previous year. The average price in Shanghai was RMB11 270/t, a drop of RMB2 258/t. The average price in Qingdao was RMB11 199/t, a drop of RMB2 239/t. The average price in Tianjin was RMB11 374/t, a drop of RMB2 254/t.

Prospects of natural rubber market in 2016

In terms of major overseas producing regions, as new rubber plantations are still in a phase of rapidly tapping new trees, the supply will remain abundant. Due to slack prices, however, overall output growth will likely be on the low side. The output of natural rubber in China will continue the declining trend. As the amount of natural rubber imported is far higher than domestic output, however, supply shrinkage will still mainly be determined by whether major producing countries in Southeast Asia reduce the capacity and lower the rubber tapping frequency.
In terms of demand, the tire sector in China was affected by the slack auto market and the upward adjustment of tariff rates in 2015, so the tire market had an extremely hard time. With no major positive news, the tire sector will continue to drag in 2016. In spite of this, driven by some favorable factors such as the reduction of vehicle purchase taxes by half, the release of second-hand vehicle consumption market potentials and the possible implementation of new policies for cars bought by countryside residents and businesses, auto sales will likely increase a little, giving the tire market some fresh demand. The market for heavy-duty trucks will continue to be affected by the structural deceleration of the macro economy, and the sales will have no room for optimism. Nevertheless, the increase of total investments in various projects of infrastructural facilities such as railways, highways and airports approved by the National Development and Reform Commission will doubtless benefit the market for heavy-duty trucks.
Despite positive signs in the demand side, the overall supply is still in surplus, so natural rubber prices will still fluctuate near bottom.