Rubber: Increasing demand will boost price

World natural-rubber consumption is poised to increase this year and next, diminishing surplus and boosting prices of the commodity used in tyres, according to The Rubber Economist Ltd.

The "surplus is now much smaller than before," said Managing Director Prachaya Jumpasut of the London-based industry adviser. Prices will probably climb to $3.3 a kilogram by the end of 2014 as stockpiles drop to a 'relatively low' level versus consumption, his presentation showed.

Rubber entered a bull market in August as growth in China, which represented 35 percent of demand in 2012, rebounds from a two-quarter slowdown.

Passenger vehicle sales in the country jumped the most in four months in August, according to the state-backed China Association of Automobile Manufacturers.

Natural-rubber consumption will climb by 1.5 percent this year and by 4.1 percent in 2014 from 11.04 million metric tonnes in 2012, Prachaya said at a conference in Indonesia. He cut his forecast last month for a third year of surplus to 209,000 tons in 2013 from 475,000 tons because of better-than-expected demand in Asia, where producers have reduced tapping to support prices, he said in an e-mail recently.

Thailand, Malaysia and Indonesia, representing about 70 percent of supply, reduced exports by 300,000 tons in the six months through March to boost prices.

The countries failed to agree on new curbs at a meeting in June after which Thailand unilaterally extended its export restrictions for 60 days.

"Actual production will depend on prices," consultant at Rubber Market Forecasts, Hidde Smit said at the conference. Consumption will reach 19.1 million tons by 2025, exceeding normal output at 18.4 million tons, said Smit, a former Secretary General of the International Rubber Study Group.

Futures on the Tokyo Commodity Exchange dropped to 256.5 yen a kilogram ($2,625 a ton), the lowest close since August 8, extending this year's losses to 15 percent. Prices gained 12 percent in the third quarter.

Rubber at $2.8 to $3 a kilogram is an appropriate level for producers, Chairman of the Rubber Association of Indonesia, Daud Husni Bastari said in an interview today.

Indonesia's output will reach 3.2 million tons in 2013 from 3.04 million tons in 2012, Chairman of the Rubber Council, Aziz Pane said. While the country could overtake Thailand as the biggest producer in 2015, domestic tyre makers are increasing operations and will boost demand, he said.

Wholesale deliveries of vehicles in China climbed 11 percent to 1.35 million units in August, the largest gain since April, according to the automobile manufacturers association, which predicts total national sales will exceed 20 million units this year for the first time.