The most recent rubber Industry report of IRSG indicates that a negative growth of natural rubber (NR0 production in the face of steady rate of NR consumption has created a large deficit in the world NR market in 2014, which suggests future performance of NR market would not be as bad as was expected.
The global economy continues to recover. The Euro area’s GDP is projected to grow by 1.2 percent in 2014, while the USA’s economy contracted in Quarter 1 (Q1) 2014, but the Q2 2014 points to an acceleration of economic growth. In Japan, the economy shrunk in Q2 2014, but the expectation for it is still intact for the year a whole.
Economic growth in the emerging markets continues to be in a disappointing state, however. The Chinese GDP figures are diverging from indicators which describe the manufacturing sector more closely. India continues to grow slowly, Russia’s as well as Brazil’s economy are going through recessions.
World total rubber consumption increased at an accelerated rate in Q2 2014, mechanically driven by the quickened pace of positive growth in China. Fundamentally, the reason for the sustained relatively high growth rate remains the same: the sustained world economic expansion, especially of the mature tyre economies. The accelerated growth rate, however, is a function of the expanded rubber production capacity in China.
World NR production decreased in Q2 2014. It is the first negative quarterly growth since Q2 2013, when the world NR production fell by 2.3 percent. Mechanically, the world downturn is a reflection of Thailand, where the NR output dropped by the biggest decrease since Q4 2009. World SR production increased at an accelerated rate in Q2 2014, mechanically due to China and the Asia-Pacific (excluding China), despite continued negative pull of the EMEA (excluding EU-28) and the weak growth of the EU-28.
Recent export performance
The negative growth of NR production in the face of steady rate of NR consumption created a large deficit in the world NR market in Q2 2014, it was in 1,000 tonnes deficit in Q2 2014 for the world SR market.
World exports of NR continued to increase Q2 2014 at a decelerated rate compared to Q1. A moderate exports growth in Q2 compared to the exceptionally strong growth in the previous two quarters partially supported a draw down from built-up stocks. The main driver behind the quarter on quarter deceleration in Q2 was on account drop in import demand in China.
World exports of SR increased at an accelerated rate in Q2 2014. Mechanically, the acceleration is mainly due to the Asia-Pacific. With over 55 percent of total SR production exported (in 2013), SR exports are mainly a function of the production and the accelerated 17.5 percent increase in the SR output of Asia-Pacific in Q2 2014 explains much of the accelerated world SR exports in the same period.
NR spot and benchmark prices in the futures market continued the downward trend until the end of August and the price dropped to almost 1700 (US$/Tonne). The physical markets prices followed the trend of the futures markets.
Since May 2014, the Brent price has picked up due to positive USA economic data and hence stronger USA gasoline demand. But since the middle of June 2014, it has started to fall again. Abundant supply and insufficient demand has seen the butadiene prices steadily fall since April 2014 in Europe and the USA. The price curve of styrene-butadiene rubber as well as polybutadiene has again followed the dynamics of its main feedstock butadiene.
The Global NR latex consumption rebounded in Q2 2014 reflecting the industry re-adjustment to the decline in previous quarter and an anticipated increase in gloves usage in the health care sector. The rebound in latex consumption was mainly driven by China, Malaysia, and the EU-28 as well as the EMEA excluding EU-28. An increase in the expected demand for gloves in the health care sector on WHO’s warning on the Ebola outbreak supported the consumption growth in Q2. Global NR latex output dropped in Q2 driven by the production decline in Thailand. Latex production increased across major producers, with the exception of Thailand and Malaysia, in tune with production season.
There appears to have been a surge in the growth rates of all categories of exports of latex products in Q2 2014, with the all important Gloves seemingly leading the way. The surge was as a result of a sharp increase in demand from the mature gloves markets of the EU-28 and USA.
The latest forecast of the world rubber market situation is presented in table 1. Only the world totals are presented here. It can be seen that the balance of Rubber production / Consumption is expected to narrow down in 2014 and 2015.
Natural rubber production
World NR production decreased in Q2 2014. It is the first negative quarterly growth since Q2 2013, when the world NR production fell by 2.3 percent. Mechanically, the world downturn is a reflection of Thailand, where the NR output dropped by the biggest rate since Q4 2009 ( Table 2) .
The demand for NR is steady, which had increased by 4.2 percent in Q1 2014 and by 3.4 percent in Q2 2014. The physical conditions for supply have also been steady-to-positive, with no report of adverse weather conditions, although there have been reports of negative impact of the political changes in Thailand to the supply of rubber in that country. Thus, it must be concluded that the decrease in the NR output in Q2 2014 is a reflection of the supply control by small growers through interrupted tapping in response to the continuing low level of rubber prices.
The turnaround for the Other Asia-Pacific in Q2 2014 is due to India and Malaysia, mechanically. The reason for the 11.3 percent and 16.5 percent growth for India and Malaysia is technical, reflecting the 13.1 percent and 26.5 percent decreases, respectively, in the countries’ outputs of NR in Q2 2013. Sri lanka’s position in the global scene is getting further eroded and is now in the 10th position ( Table 3) , a position that needs to be reversed.
Sri Lankan scenario
Sri Lankan rubber industry’ performance in 2014 has not been satisfactory at all. In terms of NR production, Sri Lanka is now in the 10th position in world NR production ranking with 63,000 tonnes, from January to June, as against Thailand’s production of 1,696,000 tonnes ( table 3 ).
Colombo NR auction prices have been equally pathetic with Lankan Crepe-1X fetching around Rs 420 in December 2013 and then coming down to about Rs 290 in august 2014. Similarly RSS 1 which was sold at around Rs 400 came down to about Rs 260 in August 2014 ( Figure 1 and 2 ) and the position appears to be the same in September too. As Sri Lankan rubber industry has no control over NR market, the only remedy in hand is to bring down the Cost of Production ( COP) by showing professionalism and innovativeness in management
( Reference, Rubber Industry Report, IRSG September, 2014 ).
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