From the table, it is clear that the supply outlook is benign with production growth expected to be steady. However, the market in surplus allows for stock build-up. South-East Asia’s dominance in world production continues with Thailand’s share of 32 per cent followed by Indonesia’s 27 per cent.
The share of Vietnam, India, Malaysia and China is about 7 per cent each.
As new trees planted in Asia a few years ago are at full yield, the market is in a structural phase of expanding supplies.
Of course, there are ageing trees as well that yield less; yet loss from old and senile trees is more than compensated by the high productivity of young trees.
However, production growth cannot be taken for granted. The weather is now turning out to be a big risk, with El Nino evolving. Also, governmental interventions are not unusual. At the same time, weakening currencies help boost exports.
From a demand perspective, 2014 is likely to be one of slow growth. Of course, with over 70 per cent share in world demand, Asia will drive the rubber market.
China, the dominant player, accounts for 36 per cent of global demand while India’s share is 9 per cent; Japan 6 per cent and the rest of Asia 21 per cent.
Factors that drive demand include forecast of a moderate recovery in automotive demand, especially in the US and Europe.
According to industry experts, global light weight vehicle sales are likely to be the strongest since 2010 and China will drive growth significantly.
The principal input for automobile tyre is rubber. Tyre demand is said to have entered a recovery phase with replacement demand and improving new car sales.
At the same time, the outlook for synthetic rubber is not bullish. Butadiene prices are drifting lower, while butadiene capacity is rising.
So, the question is: Will demand shift from synthetic to natural rubber? Can Chinese demand give a strong boost to the market?
To be sure, China’s imports are expanding; at the same time, warehouse stocks too are rising sharply, currently estimated to be around 200,000 tonnes.
On the back of fundamentals, rubber prices have of course been under pressure for the last several months, most of the time trading under $2/kg. On current reckoning, prices in 2014 will average $2 with a potential to rise by 5-7 per cent in 2015.
As the domestic market integrates with the global market, global price pressures are felt in India too.
Prices of RSS-4 have fallen in the last two years to levels (around ₹150/kg) that have upset growers.
To protect domestic producers, in December 2013, the Government revised the import duty on dry forms of natural rubber to 20 per cent or ₹30/kg, whichever is lower (from 20 per cent or ₹20/kg, whichever is lower).
As rubber demand exceeds domestic supply, Indian import volumes have been rising. From about 197,000 tonnes in 2010-11, imports expanded to 214,000 tonnes by 2012-13.
Estimated imports during fiscal 2013-14 are significantly higher at close to 300,000 tonnes.
Looming bullish and bearish factors cannot be overlooked. Sustained global economic recovery can spur demand, while low prices can encourage more demand substitution from synthetics. The weather risk to production in the form of El Nino cannot be overlooked either.
South-East Asia has been facing dry conditions for the last four months.
At the same time, weaker producers’ currencies can boost exports. The Chinese economy is already showing signs of slowing. What if tyre demand weakens as liquidity gets tighter?
The market could come under additional pressure.