Current Natural Rubber Price Trend No Reflective Of Fundamentals

28 August 2017
By Media OutReach

A Joint Meeting between Senior Officers of the International Tripartite Rubber Council (ITRC) and Board of Directors of the International Rubber Consortium (IRCo) has concluded that the current price of Natural Rubber (NR) is not reflective of the economic fundamentals that affect it. 

While the three Member Governments — Thailand, Indonesia & Malaysia — expressed concerns that the current downward rubber price trend and market factors are unrealistic, they are also confident on the health of NR market and that prices should adjust to reflect the fundamentals.

The recent meeting discussed the wellbeing of rubber smallholders and rubber industry in their countries, factors contributing to the rubber price and possible measures to improve NR prices.

Both ITRC and IRCo are encouraged by the findings of various technical analysis of the price movements on the Tokyo Commodity Exchange (TOCOM), Shanghai Futures Exchange (SHFE) and Singapore Commodity Exchange (SGX) that indicates that the market is entering a consolidation phase, signifying the establishment of a new momentum to set a new direction for the market.

Also supporting the indication of a consolidation phase is the analysis of the open interest — the total number of open or outstanding (not closed or delivered) futures contracts that exist on a given day, delivered on a particular day — movement which confirms that TOCOM, SHFE and SGX are in oversold positions, leading to short covering in the near term.

The analysis is further supported by prevailing fundamentals as producing areas in the Southern hemisphere, particularly in Indonesia, are expected to experience slower production as the wintering season peaks.

A reduction in production from Thailand and Malaysia is also anticipated due to low rubber prices and change in weather pattern, compounded by unusual heavy rains in northern Thailand which affected rubber production there.

It is also expected that NR consumption for 2017 will increase further, supported by better world GDP growth, where the positive GDP growth of major economies and improving commodity indices will further enhance the sentiment in NR markets.

Meanwhile, the revised estimates in the July forecast of the International Monetary Fund (IMF) of the world GDP growth to 3.5% for 2017 is higher than its earlier January forecast of 3.4% and higher than the 2016 GDP performance of 3.2%.

The GDP of all major NR consuming countries including USA, Japan, EU and India are all forecast to improve, while China’s GDP is forecast to remain at 6.7%.

China’s actual economic growth in 1Q17 and 2Q17 at 6.9%, which has already exceeded its forecast growth, is its strongest performance in 18 months and indication of a strong demand side.

Automobile sales in the first 6 months of this year in major NR consuming countries — China, EU & Japan — also recorded a positive growth of 3.8%, 4.7% and 9.2% respectively.

“We strongly believe that all these fundamentals and consumption patterns have resulted to an improvement of the NR stock-consumption ratio from 3.02 at the beginning of 2016 to 2.38 in July 2017 and is expected to further decrease to 2.34 by the end of 2017,” said IRCo Board of Directors Chairman Mr Mesah Tarigan.

Meanwhile, the Association of Natural Rubber Producing Countries (ANRPC) has forecast a deficit in global supply-demand of NR in 2017 even though its projection has not taken into consideration the potential deduction of NR production in Thailand and Malaysia due to low prices and changes in weather pattern.

ITRC and IRCo will continue to monitor and analyse the market trend as well as explore other possible measures towards strengthening NR prices to ensure that the smallholders in the ITRC Countries will benefit from remunerative income.

In addition, focus will also be given by the three member countries to balance long term supply and demand and in this regard, are were encouraged by plans of the Thai Government to permanently remove 240,000 ha of rubber area which will permanently remove the supply of 360,000 MT of NR per year.

Thailand, Indonesia and Malaysia will continue to explore long term measures to enhance domestic consumption of NR and are committed towards cooperation under the framework of ITRC to ensure long term price stability of NR.

About the International Tripartite Rubber Council (ITRC) & International Rubber Consortium Limited (IRCo)

ITRC member countries account for 65% of global natural rubber (NR) production and 72% of world NR exports.

The International Rubber Consortium Limited (IRCo) is a company co-owned by the three major producers and exporters of NR — the Government of the Royal Kingdom of Thailand, Government of the Republic of Indonesia and Government of Malaysia.