Natural rubber prices down, production drops too

“At these levels, producers just stop producing,” said an industry source who asked to remain anonymous. 

Surpluses in natural rubber inventories, especially in China, have driven prices down over the past few months, except for occasional but temporary upticks. 

On the Singapore Commodity Exchange, Technically Specified Rubber 20—tire-grade rubber—stood at $1.648 per kilogram on Aug. 21 and fell to $1.448 on Sept. 23 before rising to $1.473 on Sept. 26. Rubber Smoked Sheets 3 on SICOM sank from $1.81 per kilo on Aug. 21 to $1.543 on Sept. 23 before increasing slightly to $1.56 Sept. 26. 

SICOM rubber prices fell again Sept. 29, to $1.447 per kilo for TSR 20 and $1.536 for RSS 3. 

Current NR prices are the lowest in five years, according to Greg Jagt, vice president of sales at Oakville, Ontario-based Astlett Rubber Inc. 

“Some traders say prices are the same as they were 15 years ago, adjusted for inflation,” Jagt said. 

In a speech before the International Tire Exhibition & Conference in Akron Sept. 9-11, Bill Hyde, senior director-olefins and elastomers at IHS Chemical, noted that Chinese NR inventories have increased significantly. 

This is affecting the prices not only of natural rubber, but of synthetic rubber as well, he said “Manufacturers have enough ability to substitute natural rubber for synthetic rubber to ensure that natural rubber is holding synthetic rubber prices down,” he said. 

The current glut of NR is creating the conditions for shortages and higher prices a few years from now, according to Hyde. 

“Give or take a few percentage points, 85 percent of the natural rubber in the world is grown by small farmers,” he said. “There are 10,000 small rubber farmers in India alone, and their plots of land average 11/2 hectares (3.75 acres). 

“It takes seven years to increase natural rubber supply. It doesn't take as long on the downside if you persuade farmers to cut down their trees.” 

Small NR farmers in countries as far flung as Indonesia and Guatemala—a relatively new addition to the list of NR-growing countries—are refusing to tap their Hevea trees, or even cutting them down to plant other crops, according to industry sources. 

The traditional equation for NR growers, according to the anonymous source, is that one kilo of rubber should buy one kilo of rice. Several years ago, the market was such that one kilo of rubber would buy 21/2 kilos of rice. Now, however, the ratio is one-half kilo of rice to one kilo of rubber. 

Bloomberg News reported Aug. 1 that Vietnamese NR production in 2014 was projected to decrease for the first time in six years, down 7 percent to 1 million metric tons. 

Meanwhile, the military junta in Thailand approved a plan in August to start selling off an estimated 208,000 tons of stockpiled NR, according to news reports. 

The previous civilian government had spent an estimated $689 million buying NR in a failed attempt to shore up prices. Frustrated at the cost of warehousing and insuring the stockpile, the civilian government had already decided to start selling it off when the coup occurred in May. 

Sources said that any unilateral Thai action is unlikely to have any effect on the world NR market. However, some said there were hopeful signs that demand could increase soon. 

“The economy is expanding, and U.S. auto sales are quite encouraging,” Jagt said. “So I think we'll reach equilibrium sooner than predicted.” 

Also, the loss of NR production is dependent on the speed in which farmers can switch to other crops, according to Hyde. 

“If they cut their trees down, what will they have for income while they wait for something else to grow in?” he said.

http://www.rubbernews.com/article/20141007/NEWS/310069984/natural-rubber-prices-down-production-drops-too