Resilient NR industry fights ruin

Despite numerous hits that downplayed the natural rubber (NR) market over 2018/2019, its total downfall was prevented and ING Research analysis highlights rallying causes that supported the market.

An early wintering season in Southeast Asia and strategic seasonal storms has allowed a cumulative production between Thailand, Indonesia, Malaysia, India and Vietnam totaling to 1.88mt in the first two months of 2019, up just 0.7% year-over-year (YoY), according to GAPKINDO. Exports from Thailand over Jan-Mar 2019 equaled 908kt, a mere 3% decline YoY.

Stepping in, the International Tripartite Rubber Council (ITRC) is expected to limit NR exports of its member countries by 240kt over a four-month period starting April 2019. The agreement has Indonesia and Malaysia reducing exports by 98.2kt and 15.6kt as of 1 April, whilst Thailand will cut shipments by 126.2kt from 20 May onwards. It is unclear how ambitious such an agenda would be in response to the NR market.In the previous ITRC intervention, these countries agreed to cut exports by 350kt for the first three months of 2018, but prices continued to trend lower for much of 2018 once the limits were lifted.A beneficial outcome of the current ITRC policy depends greatly on the US-China trade tariffs, even though outlook does not look overly constructive at present.

Meanwhile, Vietnam and Cambodia both exhibit strong export flows. Vietnamese exports increased 26.1% YoY to 401kt over the first four months of 2019, adding nearly 75-80kt of rubber to global supply over the period; Cambodian supplies increased by 10-12kt, with exports rising 23% YoY to 48.2kt in early of 2019. Additional supply from these two growers does partly offset the cuts from ITRC members.

India supplemented supply recovery by importing 582kt of NR over the 2018/2019 fiscal year (Apr-Mar), a 24% increase YoY. These additional imports followed devastating flooding in Kerala, which saw Indian production fall by almost 8% YoY to 642kt, according to India’s Rubber Board. Forecasts of a relatively normal monsoon in India this year is expected to recover its domestic output for 2019/2020, which should subsequently reduce the country’s domestic deficit.

Conversely, Chinese NR imports remain critical, with imports over the first quarter of 2019 amounting to 470kt, down 16% YoY, while imports over 2018 fell by 7% YoY to total 2.6mt. This comes as China’s tyre production continues to trend lower – cumulative output over the first three months of 2019 were down by almost 11% YoY, at 187m units only. China’s Association of Automobile Manufacturers lists 2.52m sales in March, down 5.2% YoY. Sluggish demand/vehicle sales in China leaves its SHFE inventories at the top end of the five-year high for this time of the year. However, narrowing YoY declines and a reduction in VAT boosts expectations of sales to support the SHFE.