Rubber prices recover at slow pace

By Gamini Warushamana

The boom in rubber prices that producers enjoyed during the past three years has come to an end and today, the market experiences a continuous decline in prices.

The chairman of the Colombo Rubber Traders Association, M.S. Rahim said that the price decline is mainly associated with global price decline as a result of oversupply and low demand.

However, he said during the past few days, rubber fetched relatively higher prices at the Colombo auction, compared to global prices as a result of adverse weather and low supply.

Sources in rubber growing areas said that as a result of continuous price decline and market price dropping below cost of production, some growers have stopped tapping and there is a trend to uproot rubber trees and shift to other crops such as tea.

Dr. Anura Dissanayake of the Rubber Research Institute (RRI) said that low demand and oversupply has caused the price drop.

Harvest from huge replanted fresh rubber lands in Thailand and Indonesia is now coming into the market.

Dr. Dissanayake said that supply management to face the crisis cannot be done due to the nature of the rubber trade.

The world's top natural rubber producers attempted strategies of this kind, but failed.

Indonesia, Thailand and Malaysia account for over 70 percent of global natural rubber output and they attempted curb exports, reduce tapping or buying the commodity from farmers in a co-ordinated fashion to reverse the price declines. China is the top consumer of natural rubber and it is mainly used in tyre production. Natural rubber makes up more than 40 percent of the cost of a tyre and tyre manufacturers are the big gainers of this slump in rubber prices. According to the Singapore-based International Rubber Study Group (IRSG), the market is recovering but at a slow pace.

According to the IRSG, rubber production will exceed demand by 202,000 metric tons in 2015, a gradual decline compared to 371,000 tons this year and 650,000 tons in 2013.

Actual inventories of rubber are still expected to grow.

The IRSG statistical bulletin said that global natural rubber (NR) consumption increased by 4.0% in Q1 2014, while NR production was up 1.2%.

For the quarter, the world NR market was in a marginal deficit situation, resulting in a reduction of world NR stock level.

Global synthetic rubber (SR) consumption increased by 4.6% in Q1 2014, while SR production was up 4.1%.

For the quarter, the world SR market was in a marginal surplus situation, the report said.

The robust growth rate of the SR production is a reflection of China's rapid build-up of its domestic SR capacity. An estimated 702,000 tonnes of SR capacity will be installed in China by the end of 2014, which will address a part of the needs of China's rubber industry that has been increasing its SR consumption by an average 310,000 tonnes per year during the past four years up to 2103 and to substitute the 1.6 million tonnes of imports that came into the country in 2013, the report said.

According to Bloomberg, three years ago, record high rubber prices drove producers to ram up their output. But just as more products hit the market, China -- the world's top rubber buyer -- experienced an economic slowdown and new Chinese car sales dropped. The resulting rubber glut caused futures prices to drop 28 percent this year, hitting its lowest level in nearly five years, in June, Bloomberg reported.