Global Natural Rubber Prices Likely to Soar Amid Supply Shortage and Rising Crude Oil Costs
- 17-Oct-2023 5:22 PM
- Journalist: Stella Fernandes
The global Natural Rubber market is bracing itself for a significant price surge as increased rainfall in major producing and exporting countries threatens to disrupt the production of this vital commodity. Thailand, Vietnam, and other key production areas for Natural Rubber are currently grappling with a deluge of rain, raising concerns about a supply shortage expected to widen the existing gap between supply and demand in the market. This, in turn, is expected to send rubber prices skyrocketing.
In the farmlands of Thailand and Vietnam, where a substantial portion of the world's Natural Rubber is cultivated, incessant rainfall has thrown a wrench into tapping latex from rubber trees. Excessive moisture prevents latex from coagulating effectively, impacting the quality and quantity of rubber harvested. The same story plays out in other rubber-producing regions, which only heightens fears of a global shortage.
China, the world's largest consumer of Natural Rubber, is no exception to this predicament. Hainan and Yunnan, two major rubber-producing provinces, are experiencing repetitive rainfall, leading to localized disruptions in glue production and increased Natural Rubber prices. Consequently, the anticipated depreciation of the Chinese RMB exchange rate is bound to increase import costs further, amplifying the pressure on domestic producers.
On the demand side, the rubber market is witnessing an interesting dynamic. Tire manufacturers, a key Natural Rubber consumer, are maintaining a steady production schedule. Tire processing plants operate at high capacities, particularly in the semi-steel tire segment, which enjoys robust demand. The operating rates of semi-steel tire manufacturers are at a high and relatively stable level, with companies actively coordinating production schedules and prioritizing foreign trade shipments. As a result, the overall inventory of these companies remains at a remarkably low level.
Although the operating rate has seen a slight dip, prices are on the rise, and sales are robust, contributing to overall low inventory levels for Natural Rubber. This favorable demand scenario is only exacerbating concerns about a potential supply crunch, which is expected to propel rubber prices even higher.
The global market, including import-dependent countries like the United States, is bracing for a Natural Rubber price hike that mirrors the trajectory of the major exporting nations. Importers worldwide are likely to feel the pinch as they adjust to the heightened costs of this essential commodity, putting added pressure on industries and consumers alike. Also, increasing crude oil prices further provides cost support to the Natural Rubber market. Oil prices surged by over $3 per barrel during Asian trading due to escalating military conflicts between Israel and the Palestinian group Hamas, which increased political instability throughout the Middle East and heightened concerns about oil supplies. Natural Rubber often follows the lead of oil prices as it competes for market share with synthetic rubber, a product derived from crude oil. Given the growing geopolitical tensions, potential disruptions in ocean freight, and rising freight costs, tire companies are likely to boost their rubber inventory, driving up demand for Natural Rubber. China, the largest global purchaser of Natural Rubber, has re-entered the physical markets after a week-long holiday, adding to the liveliness and activity in the market.
The repercussions of the supply-demand imbalance and the consequent price surge in the Natural Rubber market are multi-faceted. Industries reliant on rubber, from automotive to manufacturing and construction, are poised to witness increased operational costs, potentially leading to consumer price hikes. The ramifications are far-reaching and extend beyond the rubber industry, affecting various sectors of the global economy.