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Supply glut continues to weigh on rubber prices (04-06-2015)

 TOKYO -- Global prices for natural rubber -- the raw material used in car tires -- have edged up since April. However, the market is still suffering from a supply glut, according to market watchers.

 

Masayo Kondo

     To discuss the outlook for the natural rubber market, The Nikkei recently spoke with Masayo Kondo, president of Commodity Intelligence, a Japanese commodities market research company.

Q: What do you make of the market`s supply glut? 

A: The benchmark rubber contract on the Tokyo Commodity Exchange hit a record high in 2011. When rubber prices were high, rubber producers in Thailand, Indonesia and other Southeast Asian countries made huge profits. And so planted many gum trees.

     It takes about five years for a gum tree to mature, and the gum trees that were planted during the high-price period have recently begun dripping sap. Since 2012, the market has had an oversupply of 200,000 to 300,000 tons of rubber a year. Given there is a lot of room for rubber producers to increase their supply, the supply-demand balance will likely remain loose for a while.

Q: Prices started picking up at the end of April. Do you think this trend will continue?

A: The month-end price hike in April was attributable to major rubber exporters in Thailand and Indonesia, which refused to trade on the Singapore market, as they were frustrated by cheaper prices. It seems they are trying to recover rubber prices by directly dealing with tire manufacturers, without going to the distribution market. However, effects of such moves are uncertain. Having said that, the loosened supply-demand balance is not going anywhere. It is also highly likely that the prices will rise for a limited period.

Q: In Southeast Asia, governments are buying rubber to support the prices. What impact do you think that will have?

A: Although there was a change in government last year in Thailand, measures to support farmers remain effective, including the government`s buying and subsidies programs. Because local producers can sell their crops at minimum guaranteed prices, they show no signs of switching to produce palm oil or other products.

Q: How about global demand for natural rubber?

A: Car sales are on the rise in the U.S. and Europe. However, in China, the world`s largest rubber consumer, sales of new automobiles for April fell 0.5% to about 1.99 million units -- its second year-on-year decline this year since February when sales fluctuated because of the Chinese New Year holidays. Natural rubber inventory in Shanghai fell slightly less than 20% from a year earlier. But the market still seems oversupplied. 

Q: How about the outlook for natural rubber prices?

A: I predict that natural rubber prices will slightly weaken. In Thailand and Indonesia, rubber production starts increasing around May. At major markets in Thailand, the amount of natural rubber collected for distribution differs depending on the market at this point in time. But a good amount of natural rubber is expected from now on. To make the prices higher, supply-demand conditions will likely need to be tightened with new measures, such as reducing the output in countries producing natural rubber.

Interviewed by Nikkei staff writer Tomohiro Machida

http://asia.nikkei.com/Markets/Commodities/Supply-glut-continues-to-weigh-on-rubber-prices

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