Natural Rubber glut depresses world prices

The global surplus of natural rubber will reduce by 46% in 2015 according to the International Rubber Study Group (IRSG) based in Singapore. This is due to demand expanding again after the global downturn of the last two years, and a further consequence of which was farmers reducing their tapping because of decreasing prices. Production is forecast to exceed demand by 202,000 metric tons in 2015, a fall from 371,000 tons in 2014 and 650,000 tons in 2013 the IRSG said. However this forecast is a significant update from the view in May this year that estimated the oversupply would exceed the 2013 figure after it increased output estimates for Thailand, the biggest shipper. Supply increased after record prices three years ago spurred output, only to be hit by a slowing of demand as the pace of economic expansion decelerated in China, the biggest buyer. The amount of oversupply is now contracting as profits decrease for small farmers who represent 80 percent of world supply, despite forecasts of record global car sales. Global sales of light vehicles are set to climb 4 percent to a record 90.5 million units next year, according to LMC Automotive Ltd., a UK based research organisation. Sales across Asia will expand 5.4 percent in 2015, reflecting the development of Asian economies. Interestingly, the improved passenger comfort of radial tyre technology has specifically hit Indian natural rubber farmers reports Global Rubber Market News, as their production is only suitable for cross ply tyres, and as a result, Indian tyre manufacturers are having to import more high grade natural rubber. “Small growers across producing regions have started responding to a consistent decline in prices,” said Lekshmi Nair, senior economist at the IRSG. Farmers are therefore showing less enthusiasm for tapping,  as, while tyre demand is boosting usage of high grade natural rubber, global stockpiles continue to increase. “The continued decline in natural rubber prices and a slower-than-expected recovery in global demand as well as increased supply have led to an inventory buildup,” Nair said. Inventories will reach 3.79 million tons by the end of 2014 and 4.33 million tons by 2015, according to Rubber Economist Ltd, equating to 3.9 months of consumption at the end of 2014 from 2.5 months a year earlier, the London-based independent researchers estimate. Commenting on this, Carsten Fritsch, an analyst at Commerzbank A.G. in Frankfurt said “We don’t expect to see an end of ample supply, demand growth will find it hard to catch up. We do not see a major scope for prices to recover.” World inventories were 2.9 million tons at the end of 2013 from 2.26 million tons a year earlier, studies show, and world production is anticipated to rise 2 percent to 12.28 million tons this year and increase to 12.6 million tons in 2015. Demand will expand by 4.5 percent to 11.9 million tons in 2014 and grow to 12.4 million tons next year according to forecasts. Author: Adam Hooper 21st August 2014

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