Buoyant year ahead for natural rubber
By HANIM ADNAN
nem@thestar.com.my
Wednesday December 29, 2010
PETALING JAYA: Rubber prices, which hit many new historic highs over the past two months, are set to extend their rally into the first quarter of next year on a prolonged tight supply situation, says industry experts.
Currently, local rubber grades SMR 20 and latex-in-bulk are trading at record levels of RM15 and RM9.93 per kg respectively.
Malaysian Rubber Board director-general Datuk Dr Salmiah Ahmad told StarBiz that the bullishness in rubber prices was principally fuelled by a tight supply situation, speculation in rubber futures, Thailand's imposition of a new cess effective Oct 1 and dwindling stocks in major producing and consuming countries.
She said traders in the producing and consuming regions had reported strong market fundamentals following the lack of physical supplies and record low levels of stocks at private warehouses in consuming nations
In recent months, output has also been affected by abnormal rainfall.
Meanwhile, local rubber prices were also boosted by the strengthening of the ringgit.
In fact, the natural rubber (NR) price trend since 2006 had seen many new highs, supported by concerns over supply tightness, firm crude oil prices and speculation over a shortfall in production and strong demand.
On the near-term outlook, Salmiah said: “The seemingly unstoppable growth in China and India, coupled with anticipated higher average oil prices in 2010, point towards a buoyant year ahead for NR.”
She added that higher rubber prices were expected in 2011. The current heavy rain falls and floods in producing countries, coupled with tsunami wrecking parts of Indonesia, had affected production in the final quarter of 2010.
“This will be followed by the seasonal lull of leaf shedding or wintering from January to March, reducing total output by some 30% to 40%.
“In this scenario, major consumers will be making plans to replenish their much-depleted inventories in the months ahead,” added Salmiah.
The low stock levels worldwide will be also another plus point for NR price.
Salmiah pointed out that rubber stock levels were at an all time low at least in a decade. The current stock level is equivalent to about five to six weeks of world demand compared with two to three months previously.
China and India would remain important markets for NR as their “automobile industries are poised to register double-digit growth over the next couple of years.”
Association of Natural Rubber Producing Countries (ANRPC) senior economist Jom Jacob concurred that sentiment in the NR market would be dominated by the uncertainty in supply.
According to ANRPC's latest NR trends and statistics report, the severe supply situation would likely be aggravated from February to May 2011, period which coincides with the annual wintering of rubber trees.
“The current spike in the NR market has also been driven by an improved economic outlook, coupled with higher import demand from China, which registered annualised increases of 58% and 65% in October and November this year respectively.
“As the consuming industry normally goes for large volume purchases before the supply enters the wintering season (starting end of February), the demand is likely to gain further momentum in January next year,” he added.
In addition, the surge in crude oil price had also been a key driver of the present bull-phase in the NR market. According to oil industry analysts, there was a possibility of oil reaching US$100 per barrel by early 2011.
The NR market is also not immune to the increasingly speculative nature of investments in the commodity markets.
According to Jacob, total rubber supply from ANRPC's nine member countries is anticipated at 9.42 million tonnes in 2010 and 9.92 million in 2011 “if the climate takes its normal pattern”.
ANRPC members contribute about 92% to total world NR production.
On Malaysia, the world's third-largest rubber producer, Jacob said the NR supply usually took a seasonal drop from end of February until May every year, which coincides with leaf shedding by trees in summer.
“Supply during these months normally shrinks 60% to 70% of the levels during peak seasons,” he added.
He estimated that 48% of the global demand for NR comes from China, India and Malaysia the top three NR-consuming countries within the ANRPC grouping.
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