With shift in natural rubber supply trends, procurers need to look for alternate sourcing options

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By: Karthika Kurup -- Research Analyst, Petrochemicals and Fibers

01 January, 2017

ARTICLE

Abstract:

The supply trends in the NR market have ranged from an over-supply situation from end of 2015 untilnowto concerns of supply falling short of the expected pickup in demand post 2020. Concerns of short supply have already started to worry the market due to lack of support from matured plantation and tapping,etc. As wintering season (off season) endsin May and favorable production season beginsfrom June, the upcoming supply trends would determine the supply dynamics for the entire year. During the wintering season from March to May, NR prices had witnessed a positive recovery coupled with improved demand from downstream sectors and ITRC export cut scheme to limit the supply of NR. The short lived recovery did not help the farmers/producers gain enough margins that they had lost during the low priced NR periods. This led to the decrease in new plantation area andaverage yield for every tapped area due to higher input cost andlower capital availability. When considering the fact of the 7 year maturationperiod, 2020 and following years,is looking at tightened supply scenarios leading to higher prices even with varying demand trends.

This article examines the following viewpoints:

•Drivers and constraints in the supply market and their impact on sourcing

•Historical and future trends in the supply market

Global macroeconomic factors also could have a role to play in the supply trends of NR by 2020. Volatile trends in crude oil prices, political-economic factors, exchange rate and currency factors, long term impact of Brexitand slowdown in the Chinese economy can impact the supply market of NR.This article would help to comprehend

“What and when is the shift expected in the supply marketof Natural Rubber?” and “When is the beneficial sourcing period for natural rubber end users?”

The natural rubberindustry has been a witness to a rally of market sentiments that began in 2016with low prices, lackluster demand trends, inter-governmental pressure and unfavorable future production dynamics.This scenario shifted to a positive market trend during Q4 2016 to Q1 2017.In the NR market, the production dynamics from June to December decidethe entire supply trends for that particular year. Hence the beginning few monthsmostly through March to May is the wintering season, whenthe production output is very low. This tends to drive the prices higher. Continuing with low prices from 2015, the wintering season could not offer much of expected hikes in prices and thereby the tappers and farmers could not gain enough margins to support their productionin 2016.




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