Supply cut move helps rubber price rebound from six-year low

Price jumps by 2% in Malaysia, stabilizes in India; future looks uncertain on slowdown in Chinese demand

After a nearly six-year low, prices of natural rubber (NR) rebounded in global markets on Thursday, after three major producing countries announced a supply cut to arrest a further fall.

Prices of the benchmark SMR-20 variety rose two per cent to $1,107 a tonne at Kuala Lumpur; another, Latex, a similar rise to $885.50 a tonne. The rise in Bangkok was a bit subdued on wariness over tyre demand from China after its slowing in economic growth.

“The increase in NR prices is only a reaction to the supply cut announced by major producers. It is important to see if the trend continues. The problem is not swelling supply from large global producers but a slowdown in Chinese demand,” said Mayur Milak, analyst at Anand Rathi Shares.

Thailand, Indonesia and Malaysia constitute 60 per cent of world supply. The three said on Thursday they’d agreed to cut 615,000 tonnes of shipment into the world market for six months beginning March. Thailand has announced a cut in export by about 324,000 tonnes, Indonesia by 238,740 tonnes and Malaysia by 52,260 tonnes. This International Tripartite Rubber Council’s cut would constitute six per cent of world supply.

The Council said the move would help arrest a decline in prices with “a direct effect on the income of rubber smallholders in our three countries”.

In India, prices at the Kottayam wholesale market of the benchmark RSS-4 and RSS-5 varieties didn't rise but stopped falling, to trade at Rs 9,150 a quintal and Rs 8,750 a qtl, respectively.

“In the past, announcement of a supply cut by one country has seen others grabbing more market share. A slowdown in Chinese demand remains a major concern for global players. Importantly, the price in India is 20 per cent higher than abroad; still, it would follow the global move,” said Rajiv Budhraja, secretary general, Automotive Tyre Manufacturers’ Association.

From a surplus, India has become a net importer of NR. Currently, India meets 40 per cent of its annual requirement of 1.2 million tonnes through import.

The three leading global producers had collectively cut supply by 300,000 tonnes in 2012-13, equivalent to three per cent of 2012 global output. The intervention only briefly supported prices and Indonesia called for the pact to be discontinued.

According to a study, world demand growth for NR is estimated to get slower, to 1.3 per cent or 12.6 million tonnes this year, while production expands 3.8 per cent to 13 mt.