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Two Driving Forces Support Natural Rubber Price Hike

Affected by the flood in Thailand, rubber futures surged for five days from Jan. 9 to 13. And the contract Ru1705 soared 13.86% in a single week, hitting a record high since the beginning of 2016 by reaching 20330.

Market watchers predicted that the impact of the flood will keep simmer, tight supply will continue, and short supply of butadiene will boost synthetic rubber price, hence further push up rubber price.

In addition, the sales of tires and heavy trucks have turned better. Lately, rising tire price reinforced the anticipation for greater demand in the downstream. The foundation of rubber is buoyant and may keep strong later.

Persistent Rainfall in Major Producing Areas

Rubber produced by Thailand usually comes to the peak season in every Nov., but rainfall in the 2016/2017 producing period lasted for nearly two months.

At the same time, central Malaysia, another major producer, was also affected by rainfall, raw material supply in the producing area became tight and was hard to be eased in the short term.

Lately, heavy rains fell in southern Thailand due to monsoon and led to flood disasters in some areas in the south.

The formation of flood might cause greater impact than continuous rainfall, which will not only delay the progress of rubber tapping, but also may harm the rubber trees.

Shi Xiaohan, an analyst with Cinda Futures, said besides flood, there is another reason boosting rubber price hike.

Lately, natural rubber producers, including Thailand, Malaysia and Vietnam, released the rubber output and export figures in Dec., which are lower than market expectations both on a yearly basis and on a monthly basis.

The output of natural rubber in Thailand lessened 6% in Dec. from a year ago, and the export dropped 12.4% year on year.

Raw Material Shortage Pushes up Synthetic Rubber Price

Driven by butadiene, synthetic rubber price increased all the way up. Many sellers were reluctant to sell and market supply became very tight.

The quotation of butadiene rubber PetroChina Northwest Chemicals Marketing Co. surged to 22,100 yuan/ton on Jan. 13, up 2,200 yuan/ton from that on Dec. 30, 2016.

Chen Li, an analyst with Huatai Futures, said butadiene shortage was induced by changes in raw material of ethylene production route. After the change, butadiene is no longer the by product and butadiene shortage may last.

At the same time, in the first half of 2017, as large producers of synthetic rubber and butadiene will be overhauled, partial insufficient supply may further boost synthetic rubber price.

Strong synthetic rubber price will give great support to the price of natural rubber this entire year.

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