KUALA LUMPUR, Malaysia—Natural rubber prices began a rebound late last year and the Association of Natural Rubber Producing Countries expects that trend to continue in 2017.
NR price increases—particularly in the fourth quarter of 2016—were driven by several factors including recovery in the crude oil market, supply concerns and renewed expectation of a US-led global economic recovery, ANRPC reported.
In its latest Natural Rubber Trends & Statistics, published Jan. 13, the ANRPC noted the impact of a recovery in crude oil price. This was driven by the OPEC's Nov. 30 deal to cut output by 1.2 million barrels per day for six months from January 2017.
"While Brent crude oil prices rose 24 percent from end of September to end of December 2016, rubber prices (SMR-20 in Kuala Lumpur) jumped 43 percent during the same period," the report said.
Citing a Jan. 10 U.S. short-term energy outlook, the association said Brent crude oil is expected to average at $53 per barrel in 2017, up 20.5 percent from $44 per barrel in 2016.
The anticipated higher feedstock prices, ANRPC added, could make synthetic rubber materials more expensive in 2017, thereby offering better prospects for natural rubber growers.
Meanwhile, another contributing factor to price-recovery was bad weather, which affected natural rubber supply. According to ANRPC, 12 provinces in south Thailand have been severely affected by the region's worst floods in the past three decades.
Thailand accounts for 37 percent of the global supply of natural rubber and 70 percent of the country's output comes from the south, the association pointed out.
"According to a preliminary assessment made by the Rubber Authority of Thailand, the flood is likely to shave out at least 360,000 (metric tons) from Thailand's output of NR expected in 2017," the report read. "The country will be able to produce only 4.381 million ton in 2017 as against 4.741 million ton originally expected."
In addition to the shortage in Thailand, the global supply of natural rubber—including non-ANRPC—fell by an average of 0.6 percent per year between 2014 and 2016. Meanwhile demand for the product grew at 3.2 percent rate during the same time period.
Based on preliminary estimates, the report states that global supply of NR stood at 11.975 million tons during 2016, which was short of the corresponding global demand by 655,000 tons.
Another important factor is the global economy, which according to an International Monetary Fund's World Economic Outlook in October, will grow at a rate of 3.4 percent in 2017, faster than 3.1 percent rate in 2016.
"Based on the emerging global economic scenario anticipated by IMF, global supply of NR will be short of demand by 350,000 tons during 2017," ANRPC said.
With this mind, the expected natural rubber supply deficit is likely to be more severely felt during the period up to May 2017 as seasonal factors will affect the overall supply.
In addition to a favorable demand-supply fundamental and anticipated trends in crude oil market, the natural rubber market is expected to gain from improvement in commodity prices this year. IMF predicts a 10 percent jump in the index of "all commodities" in 2017 as compared to 2016.
Despite the positive outlook, ANRPC said that there was "very limited" possibility for a substantial rise in rubber prices during 2017. This, it said, is because supply has the potential to increase much beyond the expected level if prices scale too high, which can prevent the market from scaling substantial up.