By A Saj Mathews:
The bullish trends seen in the NR market since the beginning of 2017 are likely to continue mainly because of the improved global economic outlook, recovery in Chinese demand and rising oil prices. Meanwhile, the comparative uptrend in international prices, which has somewhat arrested imports by Indian tyre companies, is likely to boost domestic NR demand
Although NR prices sharply fell since mid-February, things appear to be changing for the better in the coming days in the backdrop of improved economic outlook of the US and Europe, better-than-expected automobile sales in China and recovery in oil prices.
International NR prices are at present ruling at around USD 2.34 as against USD 2.50 in mid-February while the Indian domestic prices are ruling at around USD 2.30 as against USD 2.40 in Mid-February. The difference between domestic and international NR prices has somewhat arrested imports by Indian tyre companies, which in turn is likely to boost the demand for domestic NR. In India, improvement of rubber prices, intensive campaigns and focussed extension services have created interest among rubber farmers.
For block rubber market, average monthly price of SMR-20 fell during March 2017 by 10.0% in Kuala Lumpur and that of STR-20 fell by 10.9% in Bangkok compared to February 2017. For sheet rubber, the average monthly price of RSS-3 at Bangkok fell 12.0% and that of RSS-4 at Kottayam fell by 4.2 per cent compared to February 2017.
On the demand side, a major development is that the outlook has improved for China in view of withdrawal of the US tariff on heavy commercial vehicle tyres made in China. Improved economic outlook in the US and Europe suggests possibility of faster growth in demand for NR from these non-ANRPC regions.
“Apart from this, natural rubber market is expected to gain from possible improvement in crude oil prices in the second quarter of 2017 as OPEC is planning for an extension of the curtailment programme in association with major oil producing countries outside the OPEC. Moreover, favourable trends prevailing in entire commodity markets are expected to be mirrored in NR market as wel,” says the latest monthly report of the Association of Natural Rubber Producing Countries (ANRPC)
Marginal increase in production
The first quarter production of ANRPC-Member Countries amounting to 2.499 million tonnes translates into only a 2 per cent marginal increase over the same quarter of the previous year. Though marginal, this growth is largely attributed to positive response of farmers to recovery in rubber prices.
While most of the major producing countries posted rise in production, it fell in Thailand (-10.9%) and Malaysia (-1.1%) during the first quarter of 2017 compared to the same period a year ago. Production in Vietnam rose 21.8% during the first quarter of 2017. The country received a relatively longer rainy season in the beginning of 2017. This has made conditions favourable to continue tapping during February by pushing forward the wintering off-season by a couple of weeks. In China, incidence of dry weather and powdery mildew fungal disease in Xishuangbanna, in Yunnan province, have reportedly delayed reopening of trees for tapping by 5 to 7 days during this year.
Based on preliminary estimates for the period from January to March 2017 and forecasts for the period from April to June 2017, the total production of NR by ANRPC-Member Countries is anticipated at 4.990 million tonnes during the first half of 2017, up 3.9 per cent from the same period in the previous year.
As per revised outlook, the production from the ANRPC-Member Countries during the year 2017 is anticipated at 11.314 million tonnes, up 4.7 per cent from 10.804 million tonnes in 2016. The anticipated increase in production is attributed to expansion in mature area by 383,000 hectares and improvement in average yield in response to recovery in rubber prices.
Moderate consumption rise
The ANRPC-Member Countries are estimated to have consumed 1.951 million tonnes of NR during the first quarter of 2017, up 2.8 per cent from the same period of previous year. ANRPC members currently account for 63% of the global demand for NR.
Consumption grew 3.7 per cent in China, 0.2 per cent in India, 7.7 per cent in Thailand and 4.0 per cent in Indonesia during the period from January to March 2017, compared to same period a year ago. However, it fell by 2.0 per cent in Malaysia due to a set of unfavourable conditions impacting on the country’s dominant latex-based manufacturing industry, says ANRPC bulletin.
Total consumption of NR from ANRPC-Member Countries is anticipated at 4.084 million tonnes during first half of the year, up 0.9 per cent from the same period in previous year. Revised outlook suggests that ANRPC-Member Countries would consume 8.240 million tonnes of NR during the year 2017, up 2.3 per cent from the previous year. This is an improvement compared to the 1.8 per cent earlier anticipated for the year.
China has scaled-up its demand outlook for 2017 following withdrawal of the countervailing and anti-dumping tariffs levied by the US on tyres of heavy commercial vehicles originating from China. The withdrawal of the tariffs has been a major boost to the auto-tyre manufacturing industry in China.
NR exports and imports
The ANRPC-Member Countries exported 2.243 million tonnes of NR during first three months of 2017, up 3.4 per cent from the same period of 2016. This is inclusive of NR exported to China in the form of compound rubber and mixture rubber. While exports grew in Indonesia (17.7%), Vietnam (11.2%), Malaysia (6.6 per cent) and Cambodia (43.3%), it fell 9.6% in Thailand during the first quarter of 2017 compared to the same period of 2016.
Exports of NR from ANRPC-Member Countries is anticipated to grow by 1.5 per cent during the first half of 2017. This is based on preliminary estimates for January to March 2017 and forecasts for April to June 2017. During the year 2017, total exports from ANRPC-Member Countries is anticipated at 9.109 million tonnes, up 0.5 per cent from the previous year.
Imports of NR by ANRPC-Member Countries are estimated at 1.544 million tonnes during the first quarter of the current year, up 4.0 per cent from the same period a year ago. Imports by China increased by 14.6% to 1.139 million tonnes during the first quarter of 2017 from 0.994 million tonnes during the same period of the previous year.
According to ANRPC, imports by ANRPC-Member Countries is anticipated at 2.924 million tonnes during the first half of 2017, up 2.1 per cent from the same period in 2016. Based on the revised outlook, ANRPC-Member Countries are expected to import 6.189 million tonnes of NR during 2017, down 1.6 per cent from 6.299 million tonnes during 2016.
Oil and currency trends
According to latest reports, brent crude oil price sharply drifted from end of February 2017 and hit below USD 50 in mid-March due to concerns over rising crude inventories in the US and reported failure of a few major oil producing countries to comply with the agreed curtailment programme. The fall in crude oil prices has impacted on NR prices due to speculation on possible substitution from NR to petroleum-derived synthetic rubber. However, crude oil prices have slightly recovered from the end of March, providing positive sentiments to NR market.
He Japanese yen gained considerable strength from mid-March 2017. Stronger yen has made TOCOM rubber futures relatively more expensive to speculative investors. As a result, TOCOM rubber futures suffered considerable losses during March 2017. The decline in TOCOM rubber futures during the second half of March 2017 kept sentiments down in physical market as well.
Latest economic trend impacts
A better than expected global economic performance in 2016 with an estimated growth rate of 3.1 per cent (IMF) and a cyclical upturn in manufacturing and trade certainly indicates a short-term improvement of the global economy. This certainly augurs well for the NR market.
However, the mid-term economic prospect, especially for advanced economies, still remain subdued in the face of an increase in uncertainty caused by Donald Trump’s victory in the US Presidential election in early November last year and the two interest rate hikes by the Federal Reserve in December 2016 and March 2017, says International Rubber Study Group (IRSG).