On January 27, China's rubber futures market showed divergent trends. Natural rubber futures traded slightly weaker, while synthetic rubber futures maintained their recent strong momentum. The main natural rubber contract 2605 closed at 16,195 RMB/ton, down 0.37%. The synthetic rubber 2603 contract settled at 13,515 RMB/ton, up 225 RMB/ton or 1.69% from the previous settlement price. Since January, synthetic rubber futures have accumulated a 17% gain, while natural rubber futures have risen only 3%.

The recent rally in rubber futures is primarily driven by capital flows and fundamentals. The long-term weak chemical sector has drawn significant market attention, with a noticeable increase in capital inflows. The core issue for synthetic rubber centers on short-term supply tightness in butadiene, which in turn has driven up natural rubber prices. However, some analysts suggest the synthetic rubber rally may be linked to crude oil prices. Currently, though, the correlation between the two appears limited.

Shift in Rubber Supply Cycle

The recent surge in natural rubber prices stems partly from broader commodity strength and partly from the momentum of synthetic rubber's sharp rise. The underlying logic behind synthetic rubber's rise lies in trading expectations of tightened butadiene supply in the first half of 2026. This outlook stems from two key factors: domestically, no new butadiene production capacity is scheduled to come online in the first half of 2026, while downstream sectors like low-cis styrene-butadiene rubber, solution-polymerized styrene-butadiene rubber, and ABS are all projected to see new capacity additions. This will inevitably boost domestic demand for butadiene.

Second, ethylene cracking capacity shutdowns and liquidations are anticipated in Japan, South Korea, and Taiwan in 2026. This will create subsequent overseas demand for imported domestic butadiene. With expectations of reduced imports and increased exports, coupled with seasonal maintenance shutdowns of domestic butadiene plants in the second quarter, butadiene supply may tighten further. Beyond short-term speculative trading in butadiene, the broader rotation of commodity funds into the chemical sector is also positively impacting the market. Although crude oil prices have risen during this phase, the correlation remains limited.

Additionally, new shifts are emerging in natural rubber production among major overseas producers. Rubber supply cycle has changed, with cumulative production growth slowing. Among the world's top ten rubber-producing countries, the seven-year cumulative production growth of eight nations (excluding Côte d'Ivoire and Cambodia) has turned negative from 2019 to 2024. While cumulative production declines do not necessarily mean annual reductions—global output is still projected to increase by 0.6% in 2026—it is noteworthy that this marks the first time in recent years that supply growth has fallen below consumption growth.

Regarding domestic synthetic rubber production, China will see a significant increase in supply in 2025. Taking BR-grade polybutadiene rubber as an example, annual output will rise by over 20%, with an absolute increase nearing 300,000 tons. This growth stems primarily from two sources: expansion of new production capacity and increased operating rates at synthetic rubber plants as they regain profitability due to butadiene prices falling below 2024 levels.

However, recent signs indicate a slowdown in synthetic rubber production, with supply growth decelerating consecutively. In December 2025, BR production capacity utilization declined by 5.4% year-on-year, while butadiene capacity utilization decreased by 1.0% year-on-year, marking two consecutive months of slowing output growth for both. Concurrently, no new butadiene or BR production facilities are scheduled to come online in the first half of 2026. From a valuation perspective, the ratio of the chemical index to the commodity index continues to hit historic lows. This undervaluation will curb industry expansion, with expectations of supply contraction in the medium to long term.

Semi-Ply Tires Lead Tire Sector in Capacity Utilization

On the supply side, upstream producers are selling at higher prices, indicating relatively ample supply based on transaction volumes. Downstream buyers continue to focus on purchasing at lower prices, with no unexpected large-scale restocking observed overall. However, seasonal stockpiling ahead of the Spring Festival still provides some support for spot prices.

Institutional research reports indicate that on the demand side, last week saw mixed trends in domestic tire manufacturers' capacity utilization rates. Some semi-steel tire producers saw slight increases in production schedules due to support from export orders, while most others maintained stable production levels. Full-steel tire manufacturers faced increased shipment pressure, with some implementing moderate production curbs, dragging down capacity utilization rates slightly. It is expected that tire manufacturers' capacity utilization rates will remain stable with a slight downward bias in the short term.

The recent uptick in downstream tire production rates primarily stems from rebounding order volumes at domestic tire manufacturers following the EU's six-month delay in its anti-dumping investigation on China's semi-steel tires, reigniting export rushes. Meanwhile, looking back at the full year of 2025, China's tire industry has entered a phase of stable development in both production and sales after years of rapid growth

Notably, domestic tire production and sales continued to grow in 2025. According to the latest data from the National Bureau of Statistics, China's production of rubber tires reached 1.207366 billion units in 2025, marking a 0.9% year-on-year increase. December's monthly output stood at 106.563 million units, showing a slight 0.3% year-on-year rise. By product category, production trends diverged between semi-steel and steel-belted tires.

Additionally, China's tire exports in 2025 exhibited distinct characteristics of “volume growth with moderate price increases and regional divergence.” By weight, annual rubber tire exports reached 9.65 million tons, up 3.6% year-on-year. However, export value increased only 2% to CNY167.7 billion, reflecting weak growth in unit prices. By product category, exports of new pneumatic rubber tires reached 9.29 million tons, up 3.3% year-on-year, while automobile tire exports totaled 8.19 million tons, rising 3%. Measured by units, tire exports amounted to 701.62 million pieces, a 3.1% increase.

Rubber Market Strengthens

As rubber futures prices rise, factors influencing the rubber sector have drawn external attention. First, current climatic conditions remain favorable for natural rubber production, with a focus on the trend of increasing rainfall in Southeast Asia. Second, for synthetic rubber, attention should be paid to fundamental data such as capacity utilization rates, exports, and inventory levels. Additionally, on the macro level, the sustained linkage between the rubber sector and the domestic stock market warrants observation.

From a macro perspective: First, there are clear signs of capital rotation from commodities to the chemical sector, with potential future flows toward agricultural products—a trend that could further benefit natural rubber. Second, for natural rubber, the focus is on whether the second quarter will see a relatively smooth destocking process, while synthetic rubber should prioritize monitoring the extent to which recent butadiene trading expectations materialize. Recent natural rubber inventories have indeed shown a temporary halt in accumulation. This primarily stems from increased downstream procurement following price declines and pre-holiday stockpiling, rather than indicating improving demand.

From a medium-term perspective, especially within the second quarter, synthetic rubber is likely to maintain relative strength. This is primarily due to the significant price elasticity of butadiene and the persistence of the aforementioned butadiene-related dynamics. For natural rubber, the key focus should be on whether the second quarter can achieve smooth destocking, creating fundamental resonance with synthetic rubber. Overall strategy should prioritize a long position with a focus on pullbacks.

As an integrated internet platform providing benchmark prices, on January 29th, the benchmark price of natural rubber according to SunSirs was 16150.00 RMB/ton, an increase of 5.27% compared to the beginning of the month (15341.67 RMB/ton).

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