Global rubber glut will shrink

The global surplus of natural rubber will shrink 46 percent in 2015 as demand increases and farmers reduce tapping because of decreasing prices, according to the International Rubber Study Group.

Production will outpace demand by 202,000 metric tons from 371,000 tons in 2014 and 650,000 tons last year, the Singapore- based body said. The group said in May the glut this year would exceed the 714,000 tons in 2013 after it increased output estimates for Thailand, the biggest shipper.

Futures plunged 28 percent this year, declining to the lowest level in almost five years in June. Supply increased after record prices three years ago spurred output, while demand slowed as the pace of economic expansion decelerated in China, the biggest buyer.

The glut is now contracting as profits decrease for small farmers who represent 80 percent of world supply amid forecasts for record global car sales.

“Small growers across producing regions have started responding to a consistent decline in prices,” said senior economist at the group, Lekshmi Nair.

Farmers are showing less enthusiasm for tapping while tyre demand is boosting use, she said. The inter-governmental group has members from producing and consuming nations and industry.

Futures in Tokyo, the global benchmark, plunged to a five-year low of 190.3 yen a kilogram ($1,858 a ton) on June 5 after reaching a record 535.7 yen in February 2011. The January contract rose 0.3 percent to settle at 197.5 yen today, reversing a 1 percent decline to the lowest level since June.

Global stockpiles are still expanding. Inventories will reach 3.79 million tons by the end of 2014 and 4.33 million tons by 2015, according to The Rubber Economist Ltd. Reserves will increase to the equivalent of 3.9 months of consumption at the end of 2014 from 2.5 months, a year earlier, the London-based independent researcher said.

“We don't expect to see an end of ample supply,” an analyst at Commerzbank AG in Frankfurt, Carsten Fritsch said.

“Demand growth will find it hard to catch up. We do not see a major scope for prices to recover,” he said.

World inventories were 2.9 million tons at the end of 2013 from 2.26 million tons a year earlier, study group data showed.

“The continued decline in natural rubber prices and a slower-than-expected recovery in global demand as well as increased

supply have led to an inventory buildup,” Nair said.

Production from growers representing 93 percent of global output dropped 1.1 percent to 5.83 million tons in the first seven months from a year earlier, the Association of Natural Rubber Producing Countries said. The group represents the top producers including Thailand, Indonesia and Vietnam.

Global sales of light vehicles, weighing less than six tons, are set to climb 4 percent to a record 90.5 million units next year, according to LMC Automotive Ltd, a research company in Oxford, England. Sales across Asia will expand 5.4 percent in 2015, it said.

World production will rise 2 percent to 12.275 million tons this year and increase to 12.635 million tons in 2015, the study group said.

Demand will expand by 4.5 percent to 11.904 million tons in 2014 and grow to 12.433 million tons next year.

Source: Bloomberg