Monsoon rains that drenched rubber plantations across India and Malaysia are diminishing a glut of supply for the first time in three years, just as record global car sales are boosting demand for tires.
The surplus will narrow by at least 12 per cent to 284,000 metric tonnes this year, according to the International Rubber Study Group, a 36-nation body based in Singapore. Futures that fell as much as 62 per cent since peaking in 2011 rallied into a bull market in August. Prices will rise another 13 per cent to 300 yen a kilogramme (US$3,100 a tonne) by December 31, according to the median of 15 analyst estimates compiled by Bloomberg News.
Car sales in China, which uses about a third of the world’s rubber, jumped 13 per cent in the first eight months of the year, contributing to what LMC Automotive Ltd said will be record global purchases in 2013. Smaller-than-expected output combined with rising demand prompted RCMA Commodities Asia Group, the Singapore-based company that’s been in the rubber business for a century, to cut its estimate for this year’s glut by 33 per cent to 351,000 tonnes in August.
"Global economic recovery is supporting demand and the rains have hit output," said Tetsu Emori, a senior fund manager at Astmax Asset Management Inc in Tokyo who has tracked the rubber market for 13 years. "The glut isn’t going to be as big as everyone had expected."
Rubber jumped 18 per cent to 265 yen on the Tokyo Commodity Exchange since reaching a nine-month low in June, trimming this year’s retreat to 12 per cent. The Standard & Poor’s GSCI gauge of 24 commodities fell 1.3 per cent since the start of January as the MSCI All-Country World Index of equities gained 12 per cent. The Bloomberg US Treasury Bond Index lost 2.4 per cent.
India, the fourth-biggest grower, produced 32 per cent less in July than a year earlier as monsoon rains disrupted the tapping of trees, said Rajiv Budhraja, a member of the government-run Rubber Board. Annual output may contract as much as three per cent, he said.
"There has been a significant decline in production because of the monsoon," said Budhraja, who is also director general of the Automotive Tyre Manufacturers’ Association. "Tapping was very, very restricted in the whole of July and a major part of August."
Rubber trees yield latex that is tapped by cutting into the bark and allowing the liquid to drain into containers. The material is then processed, dried and tied into bales.
In Malaysia, the third-biggest producer, output fell 11 per cent in the first eight months from a year earlier because of bad weather, according to the Kuala Lumpur-based Association of Natural Rubber Producing Countries.
Annual production will drop 14 per cent in Malaysia and 6.1 per cent in India, Prachaya Jumpasut, the managing director of The Rubber Economist, said in report last month. The 22 per cent slump in prices in the first half of the year spurred farmers to tap less rubber, Jumpasut said.
Thailand, the largest producer, amended a programme to help farmers in September by making payments based on the amount of land planted rather than buying up surplus rubber. The change reduces the incentive to keep tapping trees even as prices slump. Production fell seven per cent in the first half of the year and exports contracted five per cent, according to the Rubber Research Institute of Thailand.
Weather in second-ranked Indonesia has been more favourable and output may rise 5.2 per cent to 3.2 million tonnes this year, Aziz Pane, chairman of the Jakarta-based Indonesia Rubber Council, said in an interview October 2.
China’s growth is a threat to the rising prices anticipated in the Bloomberg News survey. The second-largest economy will gain 7.6 per cent this year and 7.4 per cent in 2014, according to the median of 57 economist estimates compiled by Bloomberg. That would be the slowest expansion since 1990.
Bridgestone Corp, the biggest tiremaker, expects to use 1.86 million tonnes of natural and synthetic rubber this year, according to Kim Yangsuk, a spokeswoman for the Tokyo-based company. While that would be a record, it’s also lower than the 1.93 million tonnes the company projected in May.
The diminishing glut is spurring consumers to use more supply from stockpiles, particularly in China, said Abah Ofon, a Singapore-based analyst at Standard Chartered Plc. Inventories in Qingdao, the nation’s main rubber trading hub, dropped 24 percent to 283,100 tonnes since reaching a record in April. Stockpiles monitored by the Tokyo Commodity Exchange were 2,831 tonnes on September 20, near the lowest level since August 2010.
Officials from China’s State Reserve Bureau met executives from the nation’s biggest domestic suppliers in September, seeking 150,000 tonnes for government stockpiles, according to two people familiar with the matter. The bureau also wanted 50,000 tonnes of imported supply, they said.
Tires represent 70 per cent of natural-rubber consumption in China, the Qingdao International Rubber Exchange Market estimates. Vehicle sales reached a record 13.95 million units in the first eight months of the year, data from the China Automotive Information Network show.
Global automobile sales will rise 2.9 per cent to an all-time high of 83.5 million units this year and another 5.4 per cent to 88 million in 2014, said Ammar Master, a senior market analyst at the Thai unit of Oxford, England-based LMC Automotive.
A tire for a medium or heavy commercial vehicle uses as much as 18 kilogrammes (40 pounds) of natural rubber, while those for passenger cars contain less than 1 kilogramme, according to CLSA Asia-Pacific Markets, a brokerage in Hong Kong.
"Auto sales will keep setting records," said Naohiro Niimura, a partner at Market Risk Advisory, a research company in Tokyo. "That’s going to bolster demand for rubber."-- Bloomberg