Malaysia-based Association of Natural Rubber Producing Countries (ANRPC) in its statistics for June 2020, painted a dismal outlook of natural rubber (NR), which has witnessed falling prices and demand, but expects consumption of NR to pick up in the third quarter, with China to lead in growth of demand.
The key factor behind the abnormal fall in the prices of NR since mid-January is the huge drop in the world demand caused by the Covid-19 pandemic, says ANRPC. The world consumption of NR dropped by 15.7% during H1 2020 (Jan-Jun 2020) as per the revised estimates. In China, the country accounting 40% of the world demand, consumption fell by 20.1% during H1 2020.
R. B. Premadasa, Secretary-General of the association said, “It is relieving to observe that the worst is almost over as far as the world consumption of NR is concerned. The world consumption is now set to enter positive territory by increasing 1.4%, year-on-year, during Q3 2020 (Jul-Sep). The consumption in China, in particular, is expected to increase by 0.8%, year-on-year, during the same quarter. Although the International Monitory Fund (IMF) has further scaled down the global economic outlook for 2020, to -4.9% growth from -3.0% projected in April, the consumption sector of NR has almost returned to normal with the exception of a few countries. More specifically, NR market has almost come out of the concerns over the abnormal fall in the demand. On the supply side, Covid-19 has removed nearly 1 million tonnes of potential supply of NR from the world market.”
Market sentiment is also expected to be triggered by a set of other favourable economic developments, which includes the impressive performance of China’s manufacturing in June, measured in terms of the Purchasing Managers’ Index (PMI), and the U-turn taken by China’s auto sales by rising 14.5% in May after a 4.4% rise in April and 43.0% fall in March. Trends in crude oil market also stay favourable to NR, Premadasa adds.
While conditions have finally turned favourable for NR market to gain strength and return to the level it ruled during first half of January, it is important to account the associated risks as well, he outlined.
“The concern over the possibility of Covid-19 taking a second wave, delay in implementing effective stimulus policies by governments, and increasing geopolitical conflicts can hinder the above favourable factors from getting translated into positive market sentiment,” he concluded.