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Rubber prices enter recovery period

22 Apr 2021

After a long time of rubber prices tending to decrease continuously, the rubber industry is entering a new cycle of price recovery.

At the beginning of the year, exports grow, rubber prices increase sharply

According to the General Department of Customs, rubber exports are growing very strongly in both quantity and value. In the first 2 months of this year, rubber exports reached 294.7 thousand tons, worth US$ 478.68 million, up 75% in volume and 94.6% in value over the same period in 2020.

Rubber exports increased sharply primarily due to the high demand in the world market, especially in China. According to the Association of Natural Rubber Producing Countries (ANRPC), global natural rubber consumption in February 2021 is estimated at 1.1 million tons, up 47.5% compared to February 2020.

Sri Trang (SET), a Thai rubber producer, forecasts global demand for natural rubber in 2021 will be at 13.4 million tons, up 7% compared to 2020.  The strong growth of the economy and the auto industry in China has supported the increase in natural rubber prices. Demand for production of rubber tires and gloves following the outbreak of Covid-19 has been pushing up rubber prices.

Demand for rubber is forecasted to recover as production in China is entering a period of strong growth when the country’s auto industry is forecasted to recover from the second quarter of 2021. According to statistics of the General Department of Customs of China, in the first 2 months of 2021, China’s import of natural and synthetic rubber reached 1.08 million tons, worth US$ 18.08 billion, up 2.3% in volume and 13.3% in value over the same period in 2020.

Meanwhile, rubber latex is in short supply compared to demand. Also according to ANRPC, world natural rubber production in February 2021 was estimated at 897 thousand tons, down 12.4% compared to February 2020.

The low amount of latex is also an important reason for the high prices of rubber. Mr. Le Van Vui, General Director of Binh Long Rubber One Member Company Limited, said that at present, the amount of rubber latex in Vietnam is scarce. Therefore, the rubber prices are tending to increase. On March 19, the average selling price of rubber latex was VND 47 million / ton.

Mr. Luu Minh Tuyen, Deputy General Director of Dong Phu Rubber Joint Stock Company, said that the price of rubber latex has recovered from the end of last year up to now. Average selling price of rubber latex of Dong Phu Rubber Joint Stock Company in the first 2 months of this year is VND 46.3 million / ton, much higher than the average selling price of the whole year 2020 of VND 35.3 million/ton. This shows that the market is very good and in favorable condition for rubber latex producers and exploiters.

According to Mr. Luu Minh Tuyen, the fact that more countries have somewhat controlled the Covid-19 pandemic, plus the implementation of Covid-19 vaccination worldwide, has created confidence in production recovery. As a result, supply chain failures have been overcome. Rubber prices have since rebounded.

With the favorable situation in the first months of the year, Mr. Le Van Vui said that the average price of rubber for the whole year might be VND 35 million / ton, higher than the initial estimate of VND 33 million / ton. For long-term rubber production and trading establishments, the average latex price of over VND 35 million / ton is an effective and profitable business.

Rubber price recovery period

According to the Vietnam Rubber Group (VRG), since 2012 up to now, there has been a steady downward trend in prices due to an oversupply of rubber around the world.  However, supply and demand factors are in a gradual rebalancing trend and contribute to the recovery of rubber prices.

In the medium term of 2021-2024, rubber prices will be subject to an adjustment from an abnormal increase in October 2020, but it is unlikely that the historic low price will be re-established.  Prices may recover slowly if not affected by the unusual effects of other fundamental factors.

This is also consistent with the cyclical history of the rubber market.  The cyclicality of the rubber market is closely related to the development of rubber area, especially mature rubber area. The total mature area occupied by mature trees in the ANRPC member countries is expected to stabilize by 2023 or 2024. The period after 2024 is expected to see a decrease in the area of ​​mature trees (production capacity). That shows that the supply of rubber will gradually shrink until 2024 and not increase further from 2024 onwards. Tight global supply due to the stagnation and contraction of mature rubber areas is likely to continue for about 8 to 10 years, starting around the mid-2020s. Long-term tightened supply could start sooner depending on the growth of global demand for rubber. For example, a relatively faster rise in demand could cause a deficit to occur sooner than expected and cause prices to rise over the long term.

VRG said that a long-term tight supply starting from mid-2021 to around 2032 due to the stagnation and contraction of mature rubber areas globally will lead to a period of price recovery.

Source: Meagan Phan – Thanh Son

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