Industry News
Rubber market performance under the strong rise in commodities since June
From the beginning of 2023 to the end of May, the overall performance of commodities was weak, with prices of other categories generally falling, except for precious metals. Since the beginning of June, commodities have started to turn against the wind, ushering in a new round of price increases. Energy and chemical products, black series, and other products are the main drivers of this price increase, especially crude oil, iron ore, coke, and soda ash. From the price indices of major industries monitored by Zhuochuang Information, since June 1st, the price indices of energy, organic chemicals, agricultural products, steel, and rubber have increased by 16.41%, 17.88%, 6.35%, 4.89%, and 14.99%, respectively.
The main reasons for the strong rebound in commodities since June are the impact of rising oil prices on the energy chain under supply shocks and the passive increase in import product costs due to currency depreciation. Firstly, as of September 19th, the global benchmark Brent crude oil price has exceeded $94 per barrel, continuing the rebound trend since late June this year, with a 27% increase from the price of $74.28 per barrel on June 1st. The expectation of supply tightening continues to ferment, the weakening of the US dollar and the rebound in oil market valuations, coupled with the potential impact of storms in the US Gulf Coast on energy supply, all support the strengthening of international crude oil market prices. The rise in international crude oil prices has driven up the demand for near oil end energy products; Secondly, since February of this year, the RMB has depreciated again, causing an increase in the import cost of commodities with high import dependence such as crude oil and iron ore, especially those priced mainly by overseas exchanges. As of September 19th, the exchange rate between the Chinese yuan and the US dollar was 7.1733, a decrease of 6.86% compared to 6.713 in early February.
Against the backdrop of a general strengthening of bulk commodities, rubber raw and auxiliary products, especially those near the oil end, near the coal end, and those with high import dependence, have shown significant linkage with the rise in prices or chains.
The increase in butadiene and downstream synthetic rubber near the oil end is significant
The rise in prices of butadiene and downstream synthetic rubber products is the result of the linkage between the rise of energy products and the mutual drive of the products themselves. From a historical perspective, butadiene is the product closest to the oil end among many rubber raw and auxiliary materials, and its price fluctuations are most easily affected by the linkage of energy product prices, which are then transmitted downwards to synthetic rubber under cost driving. However, from this year's perspective, especially since the second half of the year, the price transmission logic of the butadiene industry chain has undergone certain changes. The fluctuation of butadiene price is not only influenced by the linkage of energy products, but also by the downstream price fluctuation of butadiene rubber, which has a certain reverse effect on it. The rebound of butadiene since June this year has been driven by the linkage of energy and chemical products, which has helped it rise from a historical low. However, the continuation and magnitude of the upward trend are more driven by the strong rise of downstream products such as butadiene rubber, while the fundamentals of butadiene and synthetic rubber have not shown significant fluctuations. The main reason is that butadiene rubber was listed for trading on the Shanghai Stock Exchange on July 28 this year, and its price fluctuations are not only affected by costs and its own fundamentals, but also by the increase in funds. Therefore, butadiene rubber has become the most active and leading product in the butadiene and downstream chains, and the price fluctuations of styrene butadiene rubber have also mostly followed the trend of butadiene rubber.
Significant increase in cost driven rubber auxiliary materials and additives
Although Nenghua products started this round of increase in mid June, driven by the rebound in crude oil prices. As a downstream antioxidant and promoter, the price transmission is slightly delayed. From the figure below, it can be seen that the upward trend in the prices of rubber antioxidants and accelerators began in late July and early August. The low rebound in prices, on the one hand, is supported by the cost of chemical products driven by the rise in crude oil prices; On the other hand, it mainly comes from the industry's own hoarding demand, which leads to a tightening of supply side support. At the beginning of this round of price increase, it was driven by the cost of upstream raw material prices such as aniline, MIBK, and cyclohexylamine rebounding; The continuous rise in prices is the result of the industry's own supply tightening assistance. Therefore, the bottoming out rebound of this round of prices began with the linkage of energy products.
Carbon black is a clearly cost driven product, and its price fluctuations closely follow the price of high-temperature coal tar as the raw material. The correlation coefficient between the two prices is as high as 90% or more. Since June, the rise in coke prices has driven the strength of downstream high-temperature coal tar prices, which in turn continues to be transmitted downwards to carbon black, driving its price increase. Therefore, this chain belongs to the transmission of products near the coal end, and the cost driven characteristics are obvious.
Natural rubber with high import dependence shows a significant upward trend
Compared to butadiene chains and auxiliary materials, although the price of natural rubber has increased, the increase is relatively limited. As a product with an import dependency of over 90%, natural rubber has been continuously depreciating since February, which will directly lead to higher import costs and further push up market prices. However, although its prices were supported in the second quarter, they only saw an increase in August, with the biggest constraint being the persistently high spot inventory caused by the high import volume from last year to the first half of this year. The breakthrough increase in prices since September has been supported by the depreciation of the exchange rate and rising costs, as well as driven by the rising prices of related products such as butadiene rubber. Therefore, although the significant increase is mainly due to the linkage between the rise of butadiene rubber and demand support, the increase in import costs caused by exchange rate factors is the key to supporting the price of natural rubber.
Exchange rate and supply disturbances weaken, short-term marginal improvement in demand supports a stronger rubber market
The new round of RMB exchange rate depreciation since February has injected confidence into the market with the second round of reserve requirement reduction by the central bank, which is conducive to stabilizing the exchange rate. Therefore, with the recovery of the economy, the pressure of future exchange rate depreciation is relatively controllable, and the upward impact on domestic commodities may weaken. In addition, after a rapid increase in international oil prices driven by expectations of tight supply in the early stage, and without an imbalance between supply and demand, the current fundamentals no longer support a significant increase in oil prices. Therefore, there is a high possibility of a future oil price correction. Even under other factors, oil prices are expected to continue to rise and it is difficult to stabilize at high levels. Therefore, international oil prices are expected to fall back to the range of $80-90 per barrel in the future, and there may be significant fluctuations, However, there is still strong support for chemical products. Therefore, future fluctuations in exchange rates and supply will weaken the support for commodity prices, and the improvement of demand margins will become an important focus of the industry.
With the implementation of the second round of reserve requirement reduction by the central bank, market liquidity will be more abundant, market vitality will be stimulated, and the resilience of the economy to continue to rebound will be more sufficient. In this situation, it can effectively boost investor confidence, thereby enhancing investment willingness, driving the recovery of industries such as infrastructure and real estate, and promoting the consumption of tires, non tire rubber products, and bulk commodities. It can not only stimulate domestic demand but also benefit imports. Therefore, the marginal improvement in downstream and terminal demand is expected to become a "relay rod" for the continued rise of some commodities. For rubber raw material products, in addition to the rising costs caused by the rise of energy products, the continuous improvement of downstream tire domestic demand margin and the impact of exchange rates on tire exports are also important support for the improvement of rubber raw material prices. Overall, crude oil prices may continue to operate at a relatively high level, with strong support for energy and chemical product prices; Downstream tires and non tire rubber products, driven by the rebound in infrastructure and real estate, have strong demand resilience. Therefore, the prices of rubber raw materials and auxiliary products can be supported temporarily. However, the strength of economic recovery and the extent of demand boost still need to be observed, so the continued upward space may be constrained.
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