1. Price Trend

There are 3 increases and 2 decreases in 2019.

According to the data from SunSirs, on January 1, 2019, the average domestic market price of natural rubber in China was 10,650 RMB/ton, and the average market price on November 25 is 12,116 RMB/ton, an accumulating increase at 13.77%. 12,116 RMB/ton is the highest average market price of natural rubber so far in 2019 according to SunSirs’ data base. To be more specific, since 2019, the natural rubber market has fluctuated between 10,000-12200 RMB/ton. The overall price has experienced 3 dramatic increase periods: The first highest price at 12,070 RMB/ton on March 4, the second highest price at 12,020 RMB/ton on June 11 and the price of 12,116 RMB/ ton on November 25 is the highest price during the year. On the other hand, there are 2 downward troughs. 10,700 RMB/ton at the end of April and early May is the first trough. The price of 10,260 RMB/ton from the end of July to the beginning of August is the lowest price this year. Overall, the difference between the highest and lowest price in 2019 (till November 25) is about 1,856 RMB/ton, with amplitude at about 18%.

The future of natural rubber may have some setback and opportunities.   

After eight years, the price of natural rubber, which used to account for lower than one-quarter of the total, has experienced a continuously decrease by first 11 month by 2019. However, with two-thirds of the time passing in November, the decrease is replaced by a significant increase trend. As per SunSirs, there is a large amount of cash flowing into Shanghai Rubber market, pulling market strongly up. It gives some “eye-catching” prices within the industry. The industry even jokes that after waiting for more than half a year, it can be considered as coming today. It can be said that the impact of the economic environment and the fundamental imbalance between supply and demand contradict the natural rubber price in the first 11 months of 2019, which has exhausted market confidence and enthusiasm. The upward trend in the past few days can be a little relief to the industry. However, the key strongly relies on the future market. Although it is generally believed that the lock-up of production will promote the further upside of the natural rubber market in the next few days, the current price has risen, and the purchasing side has a strong wait-and-see mood, indicating that the actual transaction is not very active.

2. Market Analysis

Supply will decrease in the near future.

Production Areas: For domestic production areas, rubber tapping in Yunnan will be stopped at the end of November. And the producing amount of rubber is quite small currently. Another production area, Hainan will also stop cutting in the mid-December.

In terms of foreign production areas, Thailand and Malaysia suffered from fungal diseases, and the yield has a certain impact. According to the latest report of the International Tripartite Rubber Council (ITRC) shows that 382,000 hectares of rubber plantations in Indonesia were affected by fungal diseases in the first half of the year, which is expected to cause this year’s Indonesian rubber exports are expected to decline as much as 540,000 tons. At the same time, in the second half of the year, Narathiwat, which borders Malaysia on southern Thailand, was also attacked by fungal viruses, and at least 50,000 hectares of plantations are expected to be affected. Based on the damage of the three countries mentioned above, ITRC believes that rubber production in Thailand, Indonesia and Malaysia is expected to decrease by 800,000 tons this year. In general, the current gradual tightening of natural rubber production is the biggest price influencing factor for the market. Since the 20th, Shanghai rubber has risen sharply, and the spot of natural rubber has gradually increased.

Inventory: Up to November 22, 2019, the natural rubber inventory of the previous period decreases by 0.11 million tons to 489,500 tons, and warehouse receipts increases by 43,300 tons to 460,900 tons.

Import and Export: China's customs data shows that China's natural and synthetic rubber (including latex) imports were 500,000 tons, a decrease of 8.4% from last month's 546,000 tons in October 2019. From January to October, China's natural and synthetic rubber (including latex) imports amounts to 5.213 million tons. In Southeast Asia, Thailand’s natural rubber exports in October falls by 24% year-on-year but increases by 8% month-on-month, which is benefit from the expiration of Thailand’s four-month export restriction policies at the end of September and the adoption of promoting policies on supporting rubber farmers.

Demand Statistics

In terms of demand, data show that in October, the production and sales of heavy goods vehicles are 91,000 units, an increase of 12.3% and 8.3% month-on-month, and an increase of 25.8% and 14.1% year-on-year. From January to October, the production and sales of heavy goods vehicles are 942,000 and 980,000, with a year-on-year increase of 2% and 0.4%. It is reported that the current operating rate of downstream tire companies is about 70%, and the demand for rubber purchases also needs to consider seasonal and environmental factors.

3. Market Forecasting

The natural rubber analyst of SunSirs believes that the recent production of the natural rubber market has tightened and inventory has slightly reduced. Downstream demand is in the off-season stable period. The overall supply and demand has short-term favorable factors. The recent trend has continued to rise, but the fundamental contradiction cannot be solved in the short-term. The overall price of rubber is still in the low-price area. Compared with the price in the mid-November, however, the price has already increased by a thousand RMB.

The downstream side has a strong wait-and-see attitude and the actual results are fair. Follow-up should consider the possibility of a short-term technical pullback, as well as the impact of consolidation factors in China’s domestic regions and the arrival of the peak season in Southeast Asia. The possibility of a significant decline in the later period is not high. The short-term pullback pressure is greater, and there is still room for upside in the medium term. Fundamental changes on the demand side still need to be focused on.

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