Supply strained by virus spread
The persisting spike of coronavirus cases in Thailand, Indonesia, Viet Nam, and Malaysia- which together account for nearly 70% of the global production of natural rubber (NR), has raised new concerns over the supply of the commodity, according to a latest Rubber Market Intelligence Report, Vol.2, No. 14, July 16-31 by the ANRPC (Association of Natural Rubber Producing Countries). The report, which covers the NR market trend in the second half of July and short term outlook for the sector said that “the proliferation of the virus can hinder the global supply of rubber for a few more months ahead”.
For instance, rubber producers Thailand and Viet Nam have imposed tighter and more expanded control measures. Thailand, which represents 34% of the global supply of NR, has tightened the control measures by imposing curfews and extending the coverage to 40% of its population, effective from 1 August. Viet Nam’s control measures have been extended to 18 provinces/cities in the south, the country’s traditional rubber-growing region.
Economic activities have been heavily impacted since the pandemic started. In the rubber sector, the continuing global logistics disruptions, abnormal freight cost hike and shipment delays resulted in vulnerability.
Moreover, ANRPC said the period covered in the report has been marked by devastating flash floods in several cities and regions across the globe, recurrent cyberattacks affecting supply-chain logistics and business networking systems, civil unrest in a few countries and geopolitical issues.
Strong dollar impacts market
ANRPC said that the strength of the dollar is a key deciding factor of the short-term outlook for NR market. “The widening spread of Covid-19 had earlier added the dollar’s appeal as a safe-haven asset, “ ANRPC said. Additionally, a further weakening of the Malaysian Ringgit and Thai Baht, against the dollar, could also have influenced NR prices during the second half of July. “The virus spread in the Southeast Asia has continued weighing on all Asian currencies with the notable exception of the Japanese yen. While the Malaysia Ringgit lost strength against the dollar by 0.6% between 15 July and 30 July, the Thai Baht devalued by 0.7% during the same period”, said the report.
Nonetheless, with governments and businesses increasingly adapting to the Covid surge by continuing economic activities, and lifting restrictions and control measures, the dollar is unlikely to gain strength in the short-term. The U.S., most of the countries in the EU bloc, and the UK have chosen to lift the restriction by adapting to the increasing virus spread and coexisting with the pandemic.
More governments are likely to adopt a similar approach as vaccination rate goes up in the coming weeks. It implies that the dollar will lose its attraction as a safe-haven asset as more countries lift the restrictions by adapting to the surge in the pandemic. Moreover, the Federal Reserve has categorically ruled out any possibility of hiking the interest rates or shifting from its dovish policy (Policy easing) in the short-term. That said, commodities, including NR, can gain if the dollar stays neutral, according to ANRPC. Looking ahead, the emerging demand-supply scenario and the likely course of the dollar are expected to support NR market to gain strength in the short-term.