Rubber output drops in the 'peak' season, pointing to a potential supply uncertainty from end-January

Natural rubber (NR) prices soared 10 to 15% in key southeast Asian physical and futures markets between end-August and mid-October. Please see the table showing the percentage increase for different forms of NR in key markets.

Charts of daily settlement prices at the Shanghai Futures Exchange, SICOM, and JPX as well as the daily physical prices at Bangkok, Kuala Lumpur and Kottayam markets can be viewed at https://whatnextrubber.com/rubber-price-charts/

Every year, the period from mid-September to mid-January used to be the peak production season for NR globally. The comfortable supply during this season used to weigh on the prices. In sharp contrast with the usual pattern, the world supply this year is not showing any seasonal up although it is already mid-October.

Falling Production in Thailand, Indonesia and Malaysia

Several factors are keeping the production low, especially in Thailand which is the world’s largest producing and exporting country. Since the beginning of the current tapping season, the production from Thailand has reportedly come down every month by around 10% from the corresponding month in the year before. This is largely due to tapping disruptions caused by almost incessant rains across the key rubber-growing regions in the country. The changed rain pattern is painfully impacting the NR output in the world’s largest producing country. Apart from this factor, the yield of latex from rubber trees is presumably impacted by the outbreak of a circular fungal leaf-spot disease and its subsequent large-scale spread (Around 150,000 ha) over the past four years. The yield could also have been impacted by the unusually severe hot weather and heatwaves that were felt in the key rubber-growing regions in Thailand. The production of NR from Thailand in the full year 2023 is projected to be down 6.0%. For more insights, please refer to https://whatnextrubber.com/reports/

In Indonesia, the second largest producing and exporting country, the production during the current year (2023) is expected to be down 13.0% after a 13.2% fall in the year before. The production in Malaysia is expecting a 10.4% fall in 2023. Off course, the factors impacting on the NR output are different for different countries. For insights into the production trends in Indonesia, Malaysia and other producing countries along with the underlying factors, please refer to the Monthly market intelligence report available at https://whatnextrubber.com/reports/

The falling supply of NR in Southeast Asia is offsetting the weak demand especially from China, U.S. and the Europe.

The rally in rubber prices during week of Oct 9-13 is led by speculative buying in the Shanghai Futures Exchange. Speculative investors are looking ahead for large-scale investments by China’s state-backed funds as part of a major governmental initiative to shore up the country’s beleaguered capital market. China’s trade report for September, released on Friday (Oct 13) gave clear signals that the world’s second largest economy, and the largest consumer of NR, is gradually returning to stability. The trade report further helped in lifting investor confidence.

Looming Supply Shortage

The falling production in the first two major producing countries raises a critical question. The peak production season (i.e., the period from mid-September to mid-January) every year generates a surplus ranging from 1.2 to 1.5 million tons. It is this carryover stock that helps end-use manufacturing companies bridge the shortage during the lean production season (i.e., from February to June) every year. If the usual season of peak production (Mid-Sept 2023 to mid-Jan 2024) goes without generating a surplus, end-use manufacturing companies will face acute shortage of NR during the lean production season (Feb 2024 to Jun 2024). Such a situation cannot be ruled out.

Let’s closely monitor the production trends and see how much surplus is generated when the peak season ends by mid-January 2024. The production trends for the next three months will be crucial for the price dynamics of natural rubber.

Author: Jom Jacob, Chief Analyst and Managing Partner, WhatNext Rubber Media International

(The author can be reached at [email protected] or [email protected] )