How fast and effectively China manages its current power supply crisis is crucial to the short-term market fundamentals of natural rubber (NR). In other words, the pace of the global NR market in the short-term will be determined by the time taken by China to restore normalcy in the country’s power supply, says the Rubber Market Intelligence Report of Association of Natural Rubber Producing Countries (ANRPC).

While a more prolonged period can be detrimental to the intake of natural rubber in that country, the report said that a shorter time could generate pent up demand.

The power supply situation could substantially improve by the time China reopens on October 8 after the long Golden Week Holiday from October 1 to 7. The power crisis is likely to ease in the fourth quarter (Oct-Dec) as the government has already initiated steps to manage it. Despite manufacturing activities getting hindered by the electric supply crunch, China consumed 507,000 tonnes of natural rubber in August and 50,000 tonnes in September.

To cater to the demand from the manufacturing sector, China is anticipated to import 1.267 million tonnes in the fourth quarter, making the total import during the year at 4.920 million tonnes.

However, the ANRPC report said the increased manufacturing activities in Japan after the lifting Covid restrictions and the resultant short-term pent-up demand for NR could offset China's power supply shortage’s adverse effect on global demand.

The global automobile manufacturing industry crisis caused by the chip conductor shortage is likely to ease in the fourth quarter. The supply of chip conductors is expected to increase as the production capacity has expanded globally. The lifting of Covid restrictions in Japan can also contribute to this, the report said.

K.N.Raghavan, Executive Director, Rubber Board, told BusinessLine that the prices held firm in the Indian market due to sustained demand from domestic industry. This increase in demand is expected to continue for the remaining portion of this financial year. The production has also been buoyant with a 31 per cent increase from April to August.

“It is a fact that international prices have come down since June. This is mainly on account of sluggish demand from China, which is the largest consumer. The full impact of difficulties caused within China on account of power shortage and tightening of norms relating to emission and availability of credit is not as yet known. However, it is anticipated that the Chinese manufacturing sector will get back into full gear by the second half of October. Once that happens, international prices will also move northwards and firm up. Overall, we expect higher prices for rubber during this financial year as well as higher levels of production and consumption”, he added.

According to ANRPC report, NR prices can gain from the rally in the crude oil market. An expensive crude oil often triggers speculation on substitution from synthetic rubber to natural rubber and thereby takes rubber futures higher. Besides, commodities generally make gains during the upswings in crude oil because of the high weightage enjoyed by crude oil in the basket of commodities.

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