SpirallIng rubber price a cause for concern

SpirallIng rubber price a cause for concern

Natural rubber could be the ultimate bubble if its price keeps rallying at current rates, the Thai Rubber Association warned last week.
"Demand for rubber is now stronger than gold," said Luckchai Kittipol, the association's president.
Last year, the price of natural rubber rose about 80 per cent with an average of Bt106 per kilogram (US$3,600 a tonne) and, in the first two weeks of this year, shot up more than 40 per cent. The cash price last Friday reached a record of Bt175.3 per kilogram due to supply shortages and rising demand from the automobile industry, according to the Rubber Research Institute of Thailand.

"Rubber prices have been rising sharply since late last year and are higher than expected now. This raises concerns that if the prices rise further, problems will emerge. Our rubber growers will suffer later [if the prices fluctuate]," Luckchai said.
It is difficult to say what a reasonable price should be now when there is speculation and less supply in the market, but the price should not be higher than Bt150 per kilogram, he said.
Rubber growers need price stability rather than fluctuations, he said. Volatile prices easily cause problems when they peak and plunge dramatically if an asset is overpriced or speculators abruptly shift to more attractive assets.
Natural rubber prices have extended rallies since late last year due to the heavy rainfall in top rubber-producing countries, including Thailand and India, the low production season, inventory taking by rubber growers and middlemen, and growing demand for rubber futures. Speculation by cross-border traders and global investors also triggered a spike in prices.
Last year, prices of commodities especially rubber and precious metals like gold and silver, surged due partly to the shift of global investors to seek higher-yielding assets elsewhere after the US dollar had been weakening.
China, the world's largest rubber consumer, uses about 3 million tonnes of natural rubber a year, while rubber futures trading reached almost 5 million tonnes in only a month.
"This isn't the real price. It's a bubble. This situation is expected to continue until there's confidence that rubber will be sufficient or its prices are too high," he said.
The May-delivery contract in Shanghai gained 2.1 per cent to 40,985 yuan ($6,224) a tonne last Friday, according to Bloomberg.
The global demand for natural rubber is expected to be unchanged from last year at 10.3 million tonnes, while supply could be slightly higher at 10.4 million tonnes this year.
Most thought that natural rubber was in short supply but actually it was kept in inventories, Luckchai said. The global inventories amount to 1.5 million-1.6 million tonnes, while Thailand keeps about 400,000-500,000 tonnes in stock.
"Thailand has been slowing down natural rubber sales, while China is speeding up purchases to keep it in factories," he said. This situation could drive up natural rubber prices.
Thailand, Indonesia and Malaysia account for about 94 per cent of the global production of natural rubber. India is another big producer and the fourth largest consumer. Thailand is expected to produce 3.3 million tonnes of natural rubber this year, of which about 2.8 million tonnes could be exported. Last year, the country's export volume declined by 0.2 per cent to 2.73 million tonnes, while its value soared 83.4 per cent to $7.89 billion.
China, the United States and Japan dominate global rubber consumption, boosted by strong growth in motor-vehicle production and manufacturing. China is estimated to consume 3.5 million tonnes of natural rubber in 2011, followed by the US with 900,000-1.1 million tonnes.
However, declining stockpiles in China may help cool down the shooting prices of the plantation commodity. Natural rubber inventories in China declined for a second week, losing 3,143 tonnes to 65,532 tonnes, based on a survey of 10 warehouses in Shanghai, Shandong, Yunnan, Hainan and Tianjin, the Shanghai Futures Exchange was quoted by Bloomberg as saying. That is 57 per cent lower than last year's peak of 151,832 tonnes.
Despite strong demand from both manufacturing and speculation, there are some concerns over China's monetary policy tightening and Europe's sovereign debt problem, Luckchai said.
"China could raise its interest rates further and Europe's a problem. These could affect consumption of natural rubber," he said.
The baht is not likely to fluctuate much this year like it did in 2010 and rubber exporters could handle the baht's movement through hedging.
"What we're afraid of is the substitutes for natural rubber coming in the next few years. Earlier, it wasn't worth doing research and development, but now it is due to the high prices of natural rubber," he said.
Demand for both natural and synthetic rubber is likely to expand at a strong pace, but the division of the market slightly changed in Thailand. Synthetic rubber held about 58 per cent of demand and natural rubber held the remaining 42 per cent in 2009. Now, synthetic rubber is likely to hold more at 60 per cent, while natural rubber is expected to hold less at 40 per cent.
The price differential between natural and synthetic rubber is about Bt50 per kilogram. The synthetic rubber price has been rising in tandem with natural rubber from about Bt60 per kilogram to more than Bt100 now.
How operators - like the manufacturers of tyres, rubber gloves and other rubber products - respond to their rising rubber costs is another concern, he said. They should monitor the rubber situation more closely, and be aware of more price fluctuations and higher material costs, he added.



Rubber production fall may lead to further price increase

KOCHI: Bucking the market trend, rubber prices were up nearly 40% in the current peak production season that started in October and ends this week.
With the production set to enter a lean period from February, the prices are likely to remain bullish in the coming months. “The price rise in the peak production season is likely to leave the industry with very limited options,” says Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association (ATMA).
“Both the price and availability will be an issue in the coming days,” he said, adding that the industry will have to think in terms of curtailment of production if such a situation arise. Natural rubber prices saw a major jump in the domestic market during the past few months from Rs 169 per kg on October 1 to Rs 235 per kg as on Monday.
The prices are likely to see a further rise in the coming weeks as the production enters a lean phase. The overall production in the current fiscal year is likely to be slightly higher than last year’s level. During the April-December period, the production was higher 2.8% compared to the same period last year.
“In October and November, the production was lower than last year’s level while in December and January it would be higher,” said a Rubber Board official. Still, the prices have remained bullish mainly because of the rise in international prices, which saw a 65% jump from Rs 161.65 per kg in October 1 to Rs 266.61 on Monday.
N Radhakrishnan, president of Cochin Rubber Merchants Association, attributes the price rise to the surge in international prices and withholding of stocks by growers. “Moreover, productivity of the domestic rubber plantations has come down as 30% of the area is overdue for replanting,” he said.
The domestic rubber production saw a slight dip in October and November due to unseasonal rains in the main centres of production in Kerala. However, the climatic changes had a much bigger impact on the international market as the production remained depressed in Thailand, Indonesia and Malaysia due to adverse weather patterns. Latest reports say that nearly 16,000 hectares in Thailand have been destroyed due to strong winds.
The shortage and price rise in the international market have left the industry with limited options. “We have to think of keeping ‘strategic reserves’ of rubber as it is a key resource like oil,” added Budhraja.



Ivorian rubber output seen up 5 pct in 2011

ABIDJAN (Reuters) - Rubber output from Africa's top supplier Ivory Coast will rise 5 percent this year to 238,000 tonnes as high prices tempt farmers to plant more acreage despite a political crisis, a top industry official said.
The country produced 227,000 tonnes in 2010, up more than 10 percent from the previous year and beating initial forecasts of 218,000 tonnes, said Akpangi Attobra, general secretary of the Ivorian natural rubber association, APROMAC.
"As a result of high prices and programs like seed grants, we are registering lots of new rubber tree land every year," he said in an interview with Reuters on Tuesday, explaining the new 2011 rubber production forecast.
He said a post-election standoff in the country had triggered a refugee outflow from Ivory Coast's southern rubber regions that had tightened the labour market for area plantations and complicated transport.
But he said the political problems would not prevent production from rising.
Agricultural analysts have said Ivory Coast's rubber sector is benefitting from low profit margins in its cocoa industry -- the world's largest -- which has tempted farmers to seek crops that can provide more stable returns.
Attobra said China, India and Malaysia were major buyers of Ivorian rubber last season and were offering farmers long-term supply contracts and aid to processing plants.
"They are pushing hard," he said.
He said 126,000 hectares of land were producing rubber and that the state was seeking to renew 300,000 hectares of existing plantations and plant another 300,000 hectares by 2018.
Ivory Coast rubber exports totalled 246,996 tonnes in 2010 -- a figure that included some rubber produced in neighbouring Liberia and trucked to Ivory Coast for shipment from the ports of Abidjan and San Pedro.



Rubber Drops Most in Two Months as High Prices May Boost Output

Jan. 26 (Bloomberg) -- Rubber slumped by the most in more than two months on speculation that record prices are spurring producers to increase output and as China may take additional steps to curb inflation, curbing demand.
The June-delivery contract dropped as much as 4.9 percent to 453.1 yen a kilogram ($5,519 a metric ton) on the Tokyo Commodity Exchange, the most since Nov. 12. The July-delivery contract, listed on the bourse today, traded at 452.4 yen after opening at 460.2 yen.
Futures extended declines from a record of 484.9 yen reached on Jan. 24. Rubber supply may expand 4.8 percent this year as planting area increases and high prices prompt farmers to continue tapping into the low-production season, boosting supply in February, according to the Association of Natural Rubber Producing Countries. China, the world’s largest consumer, may raise interest rates before the Lunar New Year holiday, said Hisaaki Tasaka, an analyst at ACE Koeki Co. in Tokyo.
“Concern about China’s rate increase dragged the market down,” Tasaka said by phone today. “Investors with long positions are eager to take profits before the Chinese New Year holiday starts next week.” The week-long holiday starts Feb. 2.
The January-delivery contract on the Tokyo exchange expired yesterday at 478.2 yen a kilogram, the highest-ever price, the bourse said in a statement. At its expiry, 1,570 tons of physical rubber was delivered, it said.
“The volume of delivery was more than I had expected,” Tasaka said. “Supply may not be so tight.”
Tapping Continues
Rubber production by members of the Association of Natural Rubber Producing Countries may total about 9.9 million tons this year, the group said in a monthly bulletin yesterday. The countries represent 92 percent of global supply.
Supply in February from the group members could be above average as higher prices motivate farmers to continue tapping until the end of February, it said. Growers typically reduce tapping during the leaf-shedding season that begins next month.
Output in January is expected to rise 2.9 percent to 866,000 tons, slower than 13.5 percent growth in the same period last year, the group said.
Production in Thailand, the world’s largest supplier, may rise 5.4 percent to 3.25 million tons this year, the association said, citing a government target. Indonesia is expected to produce 3.08 million tons, an 8.1 percent increase. Output from Malaysia may grow 8.2 percent to 1.05 million tons, the report said, citing government targets.
Chinese Demand
Rubber in Tokyo has gained 9.9 percent this month, extending last year’s 50 percent rally, as rising car sales led by China and India boost the demand outlook. China’s vehicle sales may grow 10 percent to 15 percent this year after jumping 32 percent to 18.06 million vehicles in 2010, according to a forecast by the China Association of Automobile Manufacturers.
In Shanghai, the May-delivery contract dropped as much as 3.2 percent to 38,410 yuan ($5,831) a ton, the lowest level in a week. It was at 38,600 yuan at the 11:30 a.m. local time break.
The cash price in Thailand dropped to 178.05 baht ($5.77) a kilogram, the Rubber Research Institute of Thailand said on its website today. The price climbed to a record 181.55 baht yesterday as some plantation areas in northeastern provinces of the country have already entered the low-output season, according to the institute.



Tokyo Futures Fall, Broader Commodities Weakness Weighs

Key Tokyo rubber futures extended losses for a second day on Wednesday (January 26), with caution about the recent rapid pace in price rises and broad weakness in commodities markets a day earlier encouraging profit-taking.
The newly listed July contract, which became the benchmark rubber contract on the Tokyo Commodity Exchange when it began trading on Wednesday, stood at 463.1 yen per kg as of 0014 GMT.
The previous benchmark for June delivery fell 11.2 yen or 2.3 percent to 465.4 yen. The contract hit a record high of 484.9 yen on Monday (January 24).
Deliveries against the January rubber futures contract, which expired on Tuesday (January 25) at 478.2 yen, stood at 314 lots or 1,570 tonnes, more than doubling from December's deliveries.
The most active Shanghai rubber contract for May delivery fell 800 yuan from Monday's close to settle at 39,665 yuan ($6,027) per tonne on Tuesday (January 25).
Oil prices edged up on Wednesday (January 25) after falling the previous day when a contraction in Britain's economy and India's interest rate hike to rein in inflation fueled concerns about economic growth and the effect of rising commodity costs.
The euro steadied on Wednesday (January 25) after climbing to a two-month high above $1.37 the day before and looked poised to extend gains as momentum turned increasingly bullish after the currency's recent break above key chart levels.
Japanese and Korean automakers are expected to post divergent quarterly results, with Hyundai Motor continuing its sales-led profit growth and Toyota, Nissan and Honda being pounded by a firmer yen.
Global natural rubber (NR) supplies in January 2011 are estimated to rise 2.9 percent as farmers raised tapping after prices rallied to record highs, the group responsible for 92 percent of global output, said.
Rubber output from Africa's top supplier Ivory Coast will rise 5 percent this year to 238,000 tonnes as high prices tempt farmers to plant more acreage despite a political crisis, a top industry official said.