Agri Business

‘Rubber prospects bright over long-term’

V Sajeev Kumar Kochi | Updated on October 31, 2018 Published on October 31, 2018

Today there is a glut in the market due to increased planting during the period between 2005-13, when prices had surged   -  Getty Images/iStockphoto

The Association of Natural Rubber Producing Countries (ANRPC) does not see natural rubber prices recovering in 2019 in view of the emerging demand-supply fundamentals and factors such as high oil prices, appreciation of the US dollar, devaluation of currencies of producing countries, high inventory etc.

Jom Jacob, senior economist at ANRPC Kuala Lumpur, said that market sentiment is caught under the grip of the “production potential factor”, which is considerably up compared to the actual supply. Any improvement in price can unlock more supply into the market to offset the price recovery.

Jacob, who was in Kochi for the India Rubber Meet, said that the production potential is anticipated to stay unfavourable at least up to 2021 or 2022. The tempo of new planting and replanting has considerably slowed since 2013. Against 676,000 hectares planted in producing countries, including in India, in 2012, the figure has come down to 197,000 hectares in 2017.

Impact of decline in planting

As new plantations and replanting have declined from 2013 due to low prices, he said fewer trees will be opened for tapping from 2022, taking into account the 7-year gestation period of trees.

He pointed out that rising crude prices since 2018 did not have any positive impact on prices. The dependence of the NR market on crude is largely on account of speculation rather than actual substitution. Speculative investors often believe that high crude oil prices and the resultant high price of synthetic rubber lead to large-scale substitution of synthetic rubber with natural rubber, thereby increasing prices of NR.

However, they are now aware of the high NR inventory at warehouses of the Shanghai Exchange. The abnormal build-up of inventory, which touched an all-time high of 591,599 tonnes, keeps sentiment down.

The slowdown in Chinese NR consumption and the concerns of a trade war with the US have hit the Chinese auto-tyre sector. The sharp devaluation of the currencies of the major NR exporting countries also made rubber exporters more price competitive in the export market.

World rubber production, he said, increased 6.6 per cent to 10.39 million tonnes between January-September and is anticipated to touch 13.89 million tonnes for the full year. Consumption also increased 6.6 per cent to 10.65 mt and is pegged at 14.21 mt.

Better times ahead

Meanwhile, the possibility of a growing demand supply gap in future may begin to push prices of natural rubber up in 5-6 years and the upswing in price is likely to continue into the 2030s, said Hidde Smit, Consultant on Analysis and Forecasts of the Rubber Economy, The Netherlands, and Former Secretary General, Inter National Rubber Study Group (IRSG), Singapore.

Speaking on the subject ‘Price forecasting of rubber’ at the India Rubber Meet 2018, he said the current surplus of rubber is likely to turn into a deficit with declining consumption. This is expected to have a positive impact on prices, but not by much. “It could be $2 or $1.8 per kg by 2025 or after that”, he said.

Today there is a glut in the market due to increased plantings during the period between 2005-13, when prices had surged. Production will peak by 2022-23. The long term availability of NR depends to a large extent on uprooting, replanting and planting in the next 5-10 years, he said.

However, there would be a change in the current trend of production following consumption in the near future. Consumption may follow production due to shortage in supply. Answering a question, Smit said the focus should be more on the replanting and uprooting side with government subsidy to ensure sufficient production.

Speaking on another topic, ‘A Sustainable Rubber Industry’, John Heath, Director, Latex Services and sustainability, Corrie Macoll International, UK, said that rubber stakeholders need to accept and embrace the fact that the sustainability challenge is gaining momentum and is here to stay. There are opportunities for those who differentiate themselves, he said.

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Published on October 31, 2018
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