The quest to identify the different factors in play and evaluate to what degree they’ve been able to influence the formation of NR prices has helped us to put together a set of arguments that point to the affirmation that we have reached rock bottom; gone through the dark phases and should see “sunshine” from now on.
In my last writings of 2016 I was able to give a live report of the days that preceded the greatest volatility in the NR price in recent history. From October to December 2016, the price went up about 60% reaching USD 2,149/ton on December 14. But one question that won´t rest is: Where would it go from there?
Since the beginning of 2016, I´ve been highlighting the works of some analysts, such as Jom Jacob, ANRPC´s Senior Economist, that have been putting together both fundamental and non-fundamental factors and, as a result, indicating the possibility of a price recovery in the near future.
The quest to identify the different factors in play and to evaluate to what degree they’ve been able to influence the formation of prices, has helped us to put together a set of arguments that point to the affirmation that we have reached rock bottom; gone through the dark phases and should see “sunshine” from now on.
OPEC agreement impact
At this point, it is important to be cautious and underscore that, taking the Price Cycle theory into consideration, the one thing we know for sure is that: The sun rises only to set again.
Taking this metaphor literally, what we are doing is analyzing if it is “mid-night, or 3 am or 5 am”.
To that regard, we must highlight the analysis made by Dar Wong about the current price surge. Wong not only predicted this rally almost one year in advance, but also warned that after appreciating, prices would seek support and perform towards correction at lower rates. That is, before going even higher, prices must come down a little.
In early December 2016, everything was “going as planned”. After a great rally, the market was heading towards correction. However, all of a sudden, in comes a disturbing factor: The first supply cut agreement between OPEC and non-OPEC countries in 16 years. The spirits went high and a new rally took the market by storm.
Nonetheless, signs that a correction is on the way are still strong. One indicator of that is the performance of the Money Flow Index (MFI) (a technical parameter that uses price and volume to indicate the buying or selling pressure pointing to signs of reversal and price extremes).
The MFI applied to the NR price trend of the last 6 months, shows the accumulation of strength up to November and a weakening already in December forming what we call a “lower divergence”. This trend might be solid indication of a correction. According to Wong, prices should return to the Q3 patterns (between USD 1.50 and 1.60 per kg).
As described on my earlier analysis this December, as of July 2017, Wong predicts a new appreciation movement should take place. This outlook is sustained by the analysis of the flow of capital that is trending a movement away from gold and back towards commodities, among them rubber. Wong’s theory that the Gold/Silver ratio has reached its historical resistance and now determining capital to move away from gold is still strong. The quotes at TOCCOM have pointed that way.
In Brazil, the movement should score a good hike to the GEB-10 reference.
Even with the recent dollar strength against the Brazilian currency (already discredited by the North American interest rate hike), domestic prices continue to gain momentum along side the international appreciation.
With that, the GEB-10 reference to the months of FEB-MAR is quoted to be around R$6,95/kg, with an average TSR20 of USD 1.83 and an average exchange rate of R$3,39.
These values were calculated through a cautious projection of the next 35 days of monitoring and without considering any impact of the recent Import tax hike (from 4 to 14%) that has not created the appreciation of the farm-gate prices.
Speaking of imports, back in October we witnessed a great surge in volumes (on a year to year basis); up to November the same year on year comparison showed a 34% shrink.
Accumulating the whole year up to November, 216 has gained ground over 2015, but still shows decrease compared to 2013 and 2014.
We still need to asses the figures of domestic production for this last year to be able to determine if this phenomenon is restricted to the importation or if addresses the whole Brazilian consumption.