WASHINGTON (June 20, 2012)——Slow demand from China and Europe, concerns over the Eurozone crisis and the start of the peak production season are putting a damper on natural rubber prices, according to industry experts.
As of June 20, the ex-dock (port of entry) price of Standard Indonesian Rubber 20—the NR grade most often used by U.S. tire manufacturers—was $1.45 per pound, compared with $1.63 May 19.
Similarly, the June 20 price of Rubber Smoked Sheet 3 was $1.47 per pound on the Singapore Commodity Exchange. The price for RSS 3 averaged $1.81 per pound in February 2012, $1.78 in March, $1.74 in April and $1.69 in May.
Prices rose briefly June 18, on the news of an election victory in Greece for the New Democracy Party that favors remaining in the euro system. However, they fell again the next day.
“The natural rubber market doesn't look good going forward,” said an industry source who asked to remain anonymous. Market prices are down 30 percent from a peak in February, he said.
Although demand from the U.S. remains strong, he said, China—for the past few years the bull market for NR—is quiet, and nervousness over the euro has resulted in decreased European demand. According to another industry participant, China may have close to 200,000 metric tons of NR in its inventory, the product of a decline in manufacturing demand there.
The downturn has happened despite all sorts of government interventions, the first source said. The Thai government, for example, is buying NR stocks in an attempt to buoy prices, but it probably can't buy enough to counteract the beginning of the peak season in Thailand, he said.
“For the balance of 2012, we expect the downturn to continue,” he said.
One source, however, said the drop in NR prices could have been worse.
“Prices haven't come down as much as I thought they could,” said Greg Jagt, vice president of trading for Astlett Rubber Inc.
Prices remain much higher than at the equivalent period three years ago, particularly in latex goods, according to Jagt. “This time, there is a more coordinated slowdown in world demand,” he said.
One possible explanation for comparatively high prices is that it has been difficult to buy forward in any NR-producing country except Vietnam, he said.
“The euro is probably the biggest concern, talking about global demand,” Jagt said. “But forwards are what matter, and if that situation means a decline in demand, that means rubber prices will continue to decline.
“Right now, it's difficult to have a strong opinion as to which direction natural rubber prices will go,” he said.
The Eurozone crisis has received ongoing blame for causing a decrease in global NR demand. Earlier this month, the Association of Natural Rubber Producing Countries said it had revised its 2012 projections for growth in NR demand downward, to 3.4 percent from 4.5 percent, because of concerns over the euro.