By Supunnabul Suwannakij, Bloomberg News
SINGAPORE (Aug. 22, 2014) — The global surplus of natural rubber will shrink 46 percent in 2015 as demand expands and farmers reduce tapping because of decreasing prices, according to the International Rubber Study Group.
Production will outpace demand by 202,000 metric tons from 371,000 tons in 2014 and 650,000 tons last year, the Singapore-based body said in a recent email. The group said in May the glut this year would exceed the 714,000 tons in 2013 after it increased output estimates for Thailand, the biggest shipper.
Futures plunged 28 percent this year, declining to the lowest level in almost five years in June. Supply increased after record prices three years ago spurred output, while demand slowed as the pace of economic expansion decelerated in China, the biggest buyer. The glut is now contracting as profits decrease for small farmers who represent 80 percent of world supply amid forecasts for record global car sales.
“Small growers across producing regions have started responding to a consistent decline in prices,” said Lekshmi Nair, senior economist at the group. Farmers are showing less enthusiasm for tapping while tire demand is boosting usage, she said in the email. The inter-governmental group has members from producing and consuming nations and industry.
Futures in Tokyo, the global benchmark, plunged to a five-year low of 190.3 yen a kilogram ($1,858 a ton) on June 5 after reaching a record 535.7 yen in February 2011. The January contract rose 0.3 percent to settle at 197.5 yen today, reversing a 1-percent decline to the lowest level since June.
Global stockpiles are still expanding. Inventories will reach 3.79 million tons by the end of 2014 and 4.33 million tons by 2015, according to the Rubber Economist Ltd. Reserves will increase to the equivalent of 3.9 months of consumption at the end of 2014 from 2.5 months a year earlier, the London-based independent researcher said by email.
“We don’t expect to see an end of ample supply,” Carsten Fritsch, an analyst at Commerzbank A.G. in Frankfurt, said in an email. “Demand growth will find it hard to catch up. We do not see a major scope for prices to recover.”
World inventories were 2.9 million tons at year-end 2013 from 2.26 million tons a year earlier, IRSG data show.
“The continued decline in natural rubber prices and a slower-than-expected recovery in global demand as well as increased supply have led to an inventory buildup,” Nair said.
Production from growers representing 93 percent of global output dropped 1.1 percent to 5.83 million tons in the first seven months from a year earlier, the Association of Natural Rubber Producing Countries said. The group represents the top producers including Thailand, Indonesia and Vietnam.
Global sales of light vehicles are set to climb 4 percent to a record 90.5 million units next year, according to LMC Automotive Ltd., a research company in Oxford, England. Sales across Asia will expand 5.4 percent in 2015, it said in email.
World production will rise 2 percent to 12.3 million tons this year and increase to 12.6 million tons in 2015, the study group said. Demand will expand by 4.5 percent to 11.9 million tons in 2014 and grow to 12.4 million tons next year.
Titan International and the United Steelworkers union have petitioned the U.S. International Trade Commission and U.S. Department of Commerce seeking relief from OTR tire imports from China, India and Sri Lanka. What’s your opinion?
|I wholeheartedly support their action – something needs to be done.||
|I think it’s a bad idea that could inevitably tie the hands of domestic tire makers.||
|I oppose any duties against tire importers—they only raise costs for distributors and make it harder to obtain inventory.||
|I’m kind of on the fence and not sure what’s right, but need more information before deciding.||
|I don’t really care whether or not relief is granted.||
|Total votes: 78|