Shi Hai
Natural rubber futures prices fell back after hitting the ceiling from early September in 2020 to the middle of April in 2021. The prices are fluctuating widely in a certain range in the short term, but are expected to extend the downtrend in longer term.
Southeast Asian Natural Rubber in the Early Stage of Harvesting
According to Association of Natural Rubber Producing Countries (ANRPC), the global rubber production capacity is still in the growth cycle. Judging from the harvesting area, the lofty prices seen in the last round of 2010-2012 triggered planting of natural rubber trees, and year 2021 is in the later period of the planting boom given that natural rubber trees are conventionally tapped after about seven years of growth. It is expected that the absolute capacity will remain big after 2021 since 10-year natural rubber trees can generate the highest yield.
Thailand, Vietnam and Malaysia and other areas began to harvest natural rubber from the middle of April, resulting in an increase in output. At the same time, the climate was showing less impact on the supply of natural rubber, as the rainfall slowed down and the weather was gradually getting warm.
Although the global natural rubber production is still in the growth cycle in recent years, factors such as climate, raw material prices, the pandemic and a lack of labor force will have an important impact on the production of natural rubber from time to time. In Southeast Asia, foreign labor force will be kept from entering Thailand as affected by the pandemic, which will have a negative impact on the harvesting work in the future.
Inventory of Natural Rubber Remains Low
The inventories and warehouse receipts of natural rubber in Shanghai Futures Exchange were lower than those in the same period of previous years. Despite a significant increase, the inventories and warehouse receipts of No. 20 rubber exhibited a low base.
As of April 9, the inventories of natural rubber in Shanghai Futures Exchange were at 177 602 tons and the warehouse receipts were at 171 990 tons; the inventories of No. 20 rubber were at 59 684 tons and the warehouse receipts were at 56 166 tons.
The inventory pressure and warehouse receipt pressure of rubber in Shanghai Futures Exchange and No. 20 rubber were relatively weak, thereby putting limited weigh on futures prices.
Yunnan Production Areas Became the Earliest to Harvest in China
Yunnan production areas entered the harvesting period in middle and late March, and the domestic natural rubber market started to harvest from the middle of April. The weather in Yunnan Province is proper and the temperature difference between day and night is suitable for the production and discharge of rubber trees. Rubber farmers were engaged in harvesting rubber recently and thus it is expected that the rubber cement output rate will increase steadily this year.
The purchase price of natural rubber latex concentrate will be higher than that of whole latex rubber, which will have an impact on the production of the latter in terms of raw material resources. With expectations that rubber cement capacity will increase while natural rubber latex concentrate capacity will remain changed, the production environment of whole latex rubber in Yunnan is better than last year, and the annual total output of deliverable products is expected to return to the pre-pandemic level.
Hainan started to harvest from early April as the geographical latitude of Hainan is lower than that of Yunnan. At present, the climate in production areas of Hainan is good, and "two prevention" work – prevention work of crimes and incidents is well in place, so the delivery quantity is expected to increase.
The domestic production of natural rubber may reach or even exceed 800 000 tons this year, a significant increase of 110 000 tons or 15.94% from a year ago.
Tire Industry Sees Growth in Both Demand and Supply
Demand for tire from the domestic and foreign auto industry is resilient as a result of easing conditions from the pandemic at home and abroad. Among the three markets of the tire industry, the foreign trade market has good performance, because it is busy in fulfilling the order backlogs; the supporting market is also a good performer as driven by the continuous recovery of domestic automobile market; while the replacement market is under relatively high sales pressure.
With improving rollout of COVID-19 vaccination at home and abroad, the pandemic is being eased and the speed of recovery in the automobile industry is faster, so the demand for tire is increasing.
Sharp Year-on-year Increase in Automobile Production and Sales
In February, domestic automobile production and sales were more than 1.503 million and 1.455 million respectively, down by 37.1% and 41.9% month on month, and up by 4.2 times and 3.6 times year on year. It is expected that the automobile production and sales will continue to grow steadily in the future, which will give stronger support to upstream natural rubber and midstream tire sectors.
The negative impact of COVID-19 on domestic natural rubber market has been gradually weakened in line with macroeconomic recovery at home and abroad. However, since natural rubber market is traditionally affected by climate and labor force, there remain uncertainties. It is expected that the natural rubber market will be choppy significantly in the short term, and there will be big likelihood that the prices will soften.
