Chinese buying to firm up natural rubber prices in the short-term, says ANRPC

Natural rubber prices are likely to firm up further, thanks to increased procurement by China in large quantities over the next few weeks, says ANRPC’s Rubber Market Intelligence report.

This is because the total NR inventory in China’s warehouses has substantially reduced as manufacturing companies currently prefer sourcing from domestic warehouses rather than importing.

China is expected to consume around 500,000 tonnes per month during August-November. Of this, about 115,000 tonnes can be met from the domestic production. The period of five months from July to November represents the season of peak production and China is expected to have a monthly deficit of 385,000 tonnes during the peak season of production. At this rate, the total deficit during the four months — from August 2021 to November 2021 — is estimated at 1.54 million tonnes.

Thus, the manufacturing companies in China are left with no choice to postpone the import of 2.40 million tonnes. The imminent entry of Chinese buyers into the Asian NR market for large-scale imports is expected to dominate sentiment in the physical markets atleast for the next couple of months, ANRPC report said.

Likewise, the demand from the US, EU, the UK, and India is also expected to rebound in the short term. However, the offtake from Thailand, Indonesia, Malaysia, and Vietnam is expected to soften due to the continuing spike in the coronavirus cases, low rate of vaccination, and the curbs introduced by respective governments.

Supply constraints

On the supply side, the production from Thailand, Indonesia, Vietnam, and Malaysia is expected to remain hindered for a few months due to the virus spread. These four countries together represent 70 per cent of the global supply of NR.

However, the report went on to add that the continuing global logistic disruptions, abnormal increases in ocean freight cost, and acute shortage of semiconductors are likely to hammer the recovery momentum in several key sectors. There are also geopolitical concerns, especially the chaos in Afghanistan following the abrupt withdrawal of the US. The climatic and geopolitical concerns can pull back speculative investors from riskier asset classes, having implications on rubber futures as well.

Shift to latex

N Radhakrishnan, Advisor, Cochin Rubber Merchants Association, told BusinessLine that any rising trend in prices in the global market will definitely have a reflection here as well, as the domestic market is already witnessing an “acute shortage” of raw material. The Covid situation in Kerala has also hit production. Moreover, the rise in latex consumption has hit sheet rubber production which has registered a 25-30 per cent drop in production. The high prices received for latex at ₹155 per kg and to avoid issues related with sheet processing has forced growers to shift temporarily to latex, he said adding that the global demand for latex is also on the rise in view of the increased demand from glove manufacturers.

A source in the rubber sector pointed out that the surging price trend has prompted growers to hold the stock and this has led to a tight supply situation in the market. The daily surge in Covid cases has also scared people to go out for tapping and this has hit production in a big way.

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