KUALA LUMPUR, Malaysia (Jan. 13, 2017) — A gradual rise in natural rubber prices that started last year should continue into 2017, based on the expectation of higher synthetic rubber prices and weather-related NR shortages, the Association of Natural Rubber Producing Countries (ANRPC) reported recently.
Another mitigating factor, the ANRPC said, will be a recovering global economy, which could grow at a rate of 3.4 percent this, vs. 3.1 percent in 2016, according to an International Monetary Fund (IMF)World Economic Outlook in October.
"Based on the emerging global economic scenario anticipated by IMF, global supply of NR will be short of demand by 350,000 [metric] tons during 2017," the ANRPC said.
The expected deficit in supply of natural rubber, is therefore, likely to be more severely felt during the period up to May 2017 on account of seasonal factors affecting the supply.
Anticipated higher feedstock prices — driven by the Organization of Petroleum Exporting Countries' deal to cut oil output by 1.2 million barrels per day for the first six months of 2017 — could make synthetic rubber materials more expensive in 2017, thereby offering better prospects for natural rubber growers, the ANRPC said.
Bad weather also is expected to have a measurable impact on NR supply, the ANRPC said. A dozen 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 NR 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 tons from Thailand's output of NR expected in 2017. The country will be able to produce only 4.38 million tons in 2017 as against 4.74 million tons originally expected," the report said.
In addition to the shortage in Thailand, the global supply of NR, including non-ANRPC nations, fell by 0.6-percent annually from 2014-16 whereas demand grew 3.2 percent a year, the association said.
Based on preliminary estimates, the global supply of NR was just shy of 12 million ton during 2016, which was 655,000 tons short of the corresponding global demand.
Regarding NR and SR pricing, the ANRPC said in its latest Natural Rubber Trends & Statistics that NR prices (SMR-20 in Kuala Lumpur) jumped 43 percent during September to December, while Brent crude oil prices rose 24 percent during the same period,
Citing a Jan. 10 U.S. short-term energy outlook, the association said Brent crude oil is expected to average $53 per barrel in 2017, up 20.5 percent from $44 per barrel in 2016.
The anticipated higher feedstock prices, the ANRPC said, could make synthetic rubber materials more expensive in 2017, thereby offering better prospects for natural rubber growers.
In addition to a favorable demand-supply fundamental and anticipated trends in crude oil market, the NR market during 2017 is expected to gain from improvement in commodity prices. The IMF predicts a 10-percent jump in the index of "all commodities" in 2017 vs. 2016.
Despite the positive outlook, the 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 up substantially.
Th ANRPC is an inter-governmental organization established in 1970 open to the governments of countries producing natural rubber. The ANRPC has 11 members, the governments of Cambodia, China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand and Vietnam. These 11 countries accounted for about 90 per cent of the global production of natural rubber during 2015.
This report appeared originally on the website of European Rubber Journal, a United Kingdom-based sister publication of Tire Business.