SunSirs:Natural Rubber Market Shows Supply Contraction

Driven by favorable factors such as fundamental improvements and capital inflows, the natural rubber market began a modest rebound in late December. As of December 27, the mainstream quotation for Shanghai full-milk rubber stood at approximately CNY15,400 per ton (all prices quoted in RMBper ton hereafter), marking a cumulative increase of CNY 500 since December 22.

By late December, domestic natural rubber production areas had largely ceased tapping, while overseas regions remained in peak production season. Combined with expectations of reduced overseas shipments arriving at ports, the pace of port inventory accumulation is anticipated to ease. Overall, the spot price range for whole milk rubber in the Shanghai market is expected to remain between RMB 15,100 and RMB 15,400 in the near term.

Improving Supply-Demand Dynamics

December witnessed accelerated supply contraction and easing inventory pressure in the natural rubber market, with supply-demand dynamics becoming the core driver of price volatility and upward momentum.

From mid- to late December, seasonal supply contraction intensified further. Yunnan's production areas halted tapping entirely, while Hainan gradually ceased tapping, putting domestic output on a downward trajectory. According to Longzhong Information data, domestic natural rubber weekly output reached only 5,000 tons in the week ending December 25, down 500 tons week-on-week. Domestic tapping is expected to cease almost entirely in the next production cycle, further highlighting the supply contraction trend.

In overseas markets, while natural rubber remains in a high-yield cycle, uncertainties have significantly increased. Over the next two weeks, overall rainfall in Southeast Asian natural rubber production areas is projected to rise compared to the previous period, intensifying disruptions to tapping operations. Concurrently, expectations of reduced overseas shipments arriving at ports may slow the pace of inventory accumulation.

Notably, escalating border tensions between Thailand and Cambodia introduce additional supply-side disruptions. This conflict occurred in Thailand's northeastern primary natural rubber cultivation zone, forcing rubber mills within 200 kilometers of the border to suspend operations. Production during the peak season in December may decline overall. Currently, the future output release from this region remains uncertain, requiring continued monitoring of conflict developments and expansion risks.

On the demand side, despite the seasonal slowdown, essential demand remains robust. For the week ending December 25, the capacity utilization rate in the semi-steel tire sector reached 70.36%, up 0.35 percentage points from the previous period. Some enterprises moderately increased production to meet next month's order delivery demands, bolstering essential demand for natural rubber. The capacity utilization rate for steel-belted tires stood at 61.69%, still primarily driven by essential procurement.

Market Outlook Remains Optimistic

As of December 21, China's social inventory of natural rubber rose to 1.182 million metric tons, with a weekly increase of 30,000 tons. This year's inventory peak is around 1.25 million tons. At the current weekly accumulation rate exceeding 20,000 tons, it would take only three weeks to reach the annual inventory high.

Despite elevated inventories, rubber prices have not declined significantly. Instead, they exhibit a synchronized futures-spot oscillation with an upward bias. The main Shanghai rubber futures contract RU2605 reached CNY 15,890 and CNY 15,840 on December 25 and 26, respectively, consistently driving spot prices higher. Spot prices repeatedly surged toward CNY 15,500, creating a divergence between the bearish reality and the rebound in futures-spot prices.

The core reason for this divergence lies in the market's focus shifting from current inventory realities to future supply-demand expectations and structural imbalances. First, inventory accumulation in the fourth quarter and first quarter of the following year is a seasonal pattern for natural rubber. The current two-month accumulation cycle has been fully priced in. As long as weekly inventory growth does not exceed expectations, the marginal impact of this anticipated bearish factor will continue to diminish.

More crucially, futures pricing fundamentally reflects forward-looking assessments. The May 2026 contract, currently at the core of market speculation, is pivotal for materializing these expectations. As Thailand enters its traditional low-yield period in February 2026, the anticipated contraction in natural rubber supply becomes clear, potentially revealing long-term structural imbalances.

Current rubber prices have fully reflected the pressure from high inventories. Consequently, the industry is shifting focus away from the immediate inventory concerns and instead betting on future positive changes—namely, a rebound in demand and a reduction in imports. These two shifts could reverse the trend of continuous inventory growth, marking the inventory inflection point. In response, trading companies are positioning ahead of time. Substantial buying will drive steady increases in futures prices, subsequently lifting spot market prices. This dynamic means the market's current optimistic outlook for the future is temporarily exerting a stronger influence on price movements than the negative reality of present high inventories.

Weakening Substitution Effect

In the natural rubber market, the substitution of synthetic rubber for natural rubber represents a long-standing industrial logic. This relationship has consistently played out through price linkage and supply-demand adjustments between the two materials.

On December 1, the average domestic natural rubber price stood at CNY 14,868, while the average synthetic rubber (polybutadiene rubber) price was CNY 10,923. The price differential of CNY 4,474.16 placed it within the high substitution range.

On December 1, the average domestic natural rubber price stood at CNY 14,868, maintaining a premium of CNY 4,474.16 over synthetic rubber (polybutadiene rubber) at CNY 10,923—a level within the high substitution range. At that time, ample synthetic rubber supply and its cost advantage directly diverted essential natural rubber demand from downstream sectors like tires, capping natural rubber's upside potential.

Subsequently, as the price of butadiene—a key raw material for synthetic rubber—rose, production costs for synthetic rubber increased, leading to a narrowing price gap between natural and synthetic rubber. By December 26, the spread between SBR and natural rubber narrowed to CNY 4,317 . Concurrently, Maoming Petrochemical's SBR facility has been shut down for maintenance since November 22, with a planned restart in January 2026. This factor has constrained synthetic rubber supply, further weakening its substitution advantage and creating room for natural rubber price increases.

If you have any inquiries or purchasing needs, please feel free to contact SunSirs with support@sunsirs.com.