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The Impact of Malaysia's Lock-Down on the Chinese Tire Market
March 31 2020 12:18:42SunSirs(Daisy)

Malaysia is one of many countries that have chosen to close all external transport routes, including highways, railways and airlines, in order to better prevent the spread of the global epidemic and control the entry of foreigners. On March 16, 2020, Malaysia announced the closure of the city, starting from March 18, 2020, the country will adopt strict restrictions for two weeks to strengthen the prevention and control of public health incidents. On March 18, 2020, the port of Penang in Malaysia was closed to Thai goods. As a large country of natural rubber production, Malaysia "closure" means that natural rubber cannot be exported on time, as an important raw material of tires -- rubber, what kind of impact will this have on China's tire market?

1. Malaysia's position in the global natural rubber market

Nearly five years the Malaysian natural rubber present the downward trend, the annual output reached its climax in 2015, occupying 5.89% of global natural rubber. Then gradually subside of global output accounted, decline is more serious in 2018, 2019, the annual output of about 650000 tons, accounting for 4.55% of global natural rubber production. In 2019, ranked seventh in the major producer in the world, Malaysia implement city "seal" to form a larger effect on the global natural rubber market and shock.

2. Impact of Malaysia's "city closure" on China's rubber market

China's imports from Malaysia fell for two consecutive years after peaking in 2017. In 2019, China imported 699,000 tons from Malaysia, accounting for 13.28% of China's total natural rubber imports.

From 2017 to 2019, the average monthly import volume of China from Malaysia is around 65,000 tons. The temporary "city closure" of Malaysia for two weeks may directly cause the import volume of China from Malaysia to decrease by 30,000-35,000 tons. As can be seen from the chart, except for a relatively low import volume in February, all the other months are relatively balanced.

3. What is the impact of "city closure" in Malaysia on the tire market

The powers of Malaysia are the production of natural rubber. China imported natural rubber from Malaysia each year. Although unlock date has not yet set, for now, two months before the outbreak, the influence of delay starts. Although enterprise production cuts and there is less domestic demand, imports of raw materials to reduce the impact on the domestic tire production is not too much. At present, China's domestic non-national natural rubber inventory is as high as about 1.53 million tons, which can meet the needs of domestic normal production for more than three months. But if countries take too long to unblock them, there could be some impact as domestic demand grows.

70 percent of China's natural rubber is used to make new tires every year. China accounts for a third of global tire consumption and produces more than half of the world's tires. As a result, China is the world's largest consumer of natural rubber. China's consumption of natural rubber increased from 2.69 million tons in 2007 to 4.8 million tons in 2014.

The delay of downstream factories and the limitation of logistics and transportation will affect the consumption of natural rubber, thus forming a direct negative impact on the market. Downstream production is restricted in January and February, which will reduce the consumption of rubber raw materials. Second, logistics restrictions such as strict traffic control, reduced flow of people and many high-speed road closures, will also reduce the consumption of natural rubber's largest downstream products tires, thus forming a negative drag on the rubber demand market. 

As China is the largest importer of natural rubber, in order to avoid the Spring Festival holiday, the original source of imported goods is mainly concentrated in the port in February and March. With the extension of the holiday, the time of arrival of ships and goods at the port may be more compact and concentrated. But fortunately, the outbreak in China has been well controlled, the market is slowly recovering.

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