Natural rubber (NR) market has been increasingly fragile since the beginning of this month. As ANRPC had signaled earlier, shockwaves of debt-burden in the US and Euro zone economies severely impacted on stocks and commodities world over since the beginning of August. While fears grew about global economic slowdown, sentiments in NR market have been caught under the grip of a set of five unfavourable factors.
They include: (1) commodity markets in general have lost support from speculative investments as investors fled to gold, Swiss francs and Japanese yen in the drive for safety; (2) Japanese yen sharply appreciated during the first nine days in August, until the Bank of Japan intervened; (3) crude oil price fell during the period from the end of July until 8th August; (4) short-term outlook on NR demand turned negative; and (5) currencies of NR-exporting countries deviated from their sharp strengthening track.
However, the net impact on NR market has been less serious and short-lived thanks to a further slowdown in supply and a reversal of the trend in crude oil price along with Japanese central bank’s intervention for arresting the yen’s appreciation. Beginning from 9th August, key regional rubber markets have seen prices deviating from falling trend. The sentiments further improved since the fourth week of August.
Current trends in demand-supply position of natural rubber and the trend anticipated until October, covering all ANRPC member nations accounting 92% of the commodity’s global supply, are consolidated in table 1and 2.
Countries covered in the calculation in tables 1 and 2 by ANRPC, are Thailand, Indonesia, Malaysia, India, Vietnam, China, Sri Lanka, Philippines & Cambodia which together account for 92% of the commodity’s global supply and 48% of the demand and the figures in table 1, are computed based on actual figures up to May; preliminary estimates for June & July; and anticipated figures for August to October 2011.
Global NR prices
It has been reported that the prices of both SMR 20 (Kuala Lumpur) and STR 20 (Bangkok) fell during the period from 1st to 9th August, the former by 5.5% and the latter by 3.8%. From 10th August onwards, the markets seem to have lost clear direction although both made limited gains in a few days. Throughout August 1-27, STR 20 ruled above the rates of SMR 20.
The price of RSS 4 grade in Kottayam has been falling since 20th July and the fall has been much steeper from 4th August onwards. The grade has fallen 11.5% during the period from 20th July to 22nd August. Throughout from 20th July onwards, RSS 4 (Kottayam) has been ruling considerably below the rate of RSS 3 (Bangkok) and the gap widened from 8th to 27th August .
Price of centrifuged latex (60%) by wet weight (Malaysia) fell by 1.4% from 1st week to 2nd week in August, and there were further reductions by 10.5% in the 3rd week and 11.6% drop in the 4th week of august. Throughout the month of August, centrifuged latex prices (Kuala Lumpur) ruled lower than the rates of RSS 3 (Bangkok) and TSR 20 in Bangkok. Weekly average prices of NR in August, 2011 are indicated in Figure 1.
Colombo Auctions
The Colombo auction prices from January to August, 2011 for Latex crepe 1X, RSS 1 and RSS 3 are given in Figure 2. Lanka crepe, LCX1 remained at Rs 634/= per kg on 30th August, 2011 and Rs 628/= per kg on 2nd August. RSS1 was Rs 475/= on 18th august and Rs 481/= on 30th August. The drop on price of LC1X from July is only about 1%, but both RSS1 and RSS3 dropped by about 6% in August. Yet the prices are very remunerative to growers.
Short-term outlook on NR market
In the short-term, natural rubber market is expected to be influenced by the following four key factors:
1. Global economy is expected to take at least a few months to return to a recovery path. Demand for natural rubber, which is strongly correlated with global economic trend, is therefore expected to stay sluggish in the short-term.
2. Speculative investors and fund managers are expected to remain cautious in the near-term as they continue to focus on the on-going debt issues in the developed countries. As a result, commodity markets will continue to feel the absence of their active role.
3. Since for the last couple of years rubber growers have been exploiting all available options for maximizing the output. The fall in rubber price since the beginning of August, although marginal, is expected to bring down growers’ enthusiasm for optimising the output by adopting proper crop management practices, proper input application, stimulation, and rain-guarded tapping. They may reduce intensity of harvesting and discontinue tapping low-yielding aged trees. Recent increases in wages and other input cost have thinned down farmers’ profit margin. This could render retaining of low-yielding aged trees uneconomic. The situation is likely to prompt growers to uproot and replant their aged trees which they retained so far to take advantage of the abnormally high rubber prices. As a consequence, a considerable portion the existing yielding area will be taken over by immature trees until they attain tappable maturity after about seven years.
All these will add further pressure on an already tight supply. In short, an expected further slowdown in supply can help in offsetting an anticipated sluggish demand and balancing the demand-supply fundamental.
4. The current global economic slowdown is unlikely to bring crude oil prices down further. In fact, oil price has partly recovered after it fell during the period from the end of July until 8th August. As ANRPC reported in this column in April 2011, major oil exporting countries in the OPEC are unlikely to allow any further fall in oil price. Due to sharp increases in their social spending announced by respective governments under pressure from political unrest, these countries are now left with no option but to keep oil prices at a level comfortable enough for balancing their budgets. Even the new development in Libya, which helps resuming supply of oil from the country, seems to have little impact on oil price. These observations support the view that crude oil market would continue supporting NR prices ( Reference, ANRPC report, August, 2011)
source - www.dailymirror.lk
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