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Natural rubber has a strong relationship with global macroeconomic growth
Since its peak in 2011, natural rubber has experienced a long bear market for over a decade. What is the reason for the continuous decline in natural rubber? Will 2024 turn the tide and start an upward trend? Recently, the reporter interviewed multiple industry insiders and made reasonable speculations about the trend of natural rubber in 2024.
Ye Haiwen, Chief Analyst of Energy and Chemical Engineering at the Energy and Chemical Engineering Center of China International Trade Futures Research Institute, believes that the decline in natural rubber is caused by the combination of macro and industrial cycles. From a macro perspective, natural rubber, along with steel, coal, and oil, is known as the world's four major industrial raw materials. It is mainly used for tire production, and downstream consumer demand is closely related to automobile manufacturing, logistics transportation, and infrastructure. Therefore, natural rubber has a strong correlation with the growth of the global macroeconomy.
Since 2010, global economic growth has gradually slowed down, and the macroeconomic downturn cycle has dragged down the growth rate of rubber demand. From the perspective of industrial cycle, in the past decade, natural rubber has been in a capacity release cycle, and overall, the growth rate of production release is relatively fast. From 2005 to 2012, ANRPC member countries, especially Thailand, China, Indonesia, and Vietnam, vigorously promoted the cultivation of rubber, with an additional planting area of 563800 hectares.
After the price of natural rubber reached a historical high in 2011, the newly added planting area in 2012 also reached a historical peak. In recent years, new production capacity has gradually entered the market, and natural rubber is generally in an oversupply pattern. Since 2011, natural rubber has maintained a long bear market. Despite being driven by natural disasters and macro factors in 2017 and 2021, as well as brief bull markets, it has ultimately failed to reverse the true nature of the bear market.
Shi Xiaohan, R&D Director of New Lake Futures Chemical, stated that the growth cycle of natural rubber is relatively long, and it takes about 10 years from planting to yield release. The change in supply often lags behind the change in demand, which can easily lead to supply-demand imbalance. The emergence of the natural rubber bull market at the beginning of this century was due to the explosive growth in demand for tires in China, and the inability to keep up with production in a timely manner, resulting in a huge supply gap.
Since 2011, rubber trees planted in the bull market have entered a peak production period, with a large release of production. The balance of natural rubber supply and demand has changed, gradually shifting from supply shortage to supply and demand balance, and prices have entered a downward channel from high points.
After 2015, the growth rate of China's tire production has significantly slowed down, and in 2023, China's tire production was even lower than in 2014. Except for China, there have been no new explosive points in demand for natural rubber in other global markets. Strong supply and weak demand, the balance between supply and demand is once again imbalanced, and natural rubber prices have entered a long bear market. In recent years, long-term low profits have led to a significant slowdown in the growth rate of global natural rubber production, and even negative growth.
However, demand is also weak, and the depletion of global natural rubber inventories is not ideal. In addition, global natural rubber still has a certain potential for increased production. Therefore, in the absence of a significant boost in demand, prices cannot break through upwards.
The popularity of new energy vehicles has limited pulling effect on natural rubber
So, can the current hot new energy vehicles provide support for the rise of natural rubber?
Ye Haiwen believes that the booming sales of new energy vehicles have limited driving effect on the price increase of natural rubber. 70% of downstream consumption of natural rubber is concentrated in tires, which can be divided into semi steel tires and all steel tires. Semi steel tires are mainly used in passenger cars and light trucks, while all steel tires are mainly used in heavy trucks and construction vehicles. About 70% of semi steel tires are used for replacement and 30% are used for matching. A single semi steel tire consumes 1-1.5 kilograms of natural rubber.
About 80% of all steel tires are used for replacement, and 20% are used for matching. A single all steel tire consumes about 30 kilograms of natural rubber. Whether in terms of absolute usage of natural rubber or proportion, the replacement market of all steel tires plays a decisive driving role in the consumption of natural rubber. Despite the current booming consumption of new energy vehicles, the demand for natural rubber is not significantly driven.
In addition, new energy vehicles have a competitive relationship with traditional fuel vehicles, with a significant increase in sales of new energy vehicles, but a decline in sales of traditional fuel vehicles. Structurally, the booming sales of new energy vehicles have driven the overall growth of car sales, but the consumption of natural rubber has limited impact.
Shi Xiaohan also believes that the current hot new energy vehicles are unable to support the rise in natural rubber prices for two main reasons: firstly, natural rubber is mainly used to produce all steel tires, which are tires for large trucks and buses, rather than passenger car tires. The vast majority of new energy vehicles are passenger cars, and passenger car tires account for a small proportion of the demand for natural rubber, and their impact on demand is not significant.
Secondly, there is a trade-off between new energy vehicles and gasoline vehicles. The growth of new energy vehicles to some extent means a decline in gasoline vehicles. From 2021 to 2023, the sales growth rates of new energy vehicles in China were 165%, 96%, and 38%, respectively, while the sales growth rates of gasoline vehicles were -5%, -12%, and 3%. The rapid growth rate of new energy vehicles does not necessarily mean that the overall growth rate of automobiles is fast.
"At present, there are signs of marginal improvement in the fundamentals of natural rubber, and there is some support from supply and demand." Ye Haiwen said that from the supply side, overseas production areas have been affected by weather and pest factors since 2023, resulting in poor raw material output and strong raw material prices in production areas. The production costs of overseas processing plants remain high, production profits continue to be compressed, and inventory of raw materials and finished products is generally low. At the same time, in the first quarter, domestic production areas have entered a period of cutting cessation, and overseas main production areas have also entered a period of production reduction. The support for the natural rubber market on the cost side is more obvious.
The domestic midstream inventory is still at a high level. As of January 26th, there are still over 1.56 million tons of domestic social inventory, and inventory pressure still suppresses the market. In terms of downstream demand, since 2023, driven by external demand, downstream tire factories have had a high operating rate, maintained high growth rates in tire production and exports, and demand has also provided support for prices.
Shi Xiaohan analyzed that the current trend of adhesive prices in Thailand is strong, but this is not caused by a decrease in production, but rather by the replenishment of raw materials by local rubber factories. The domestic futures trading focuses on natural rubber products, non raw material glue, and there has been no significant disturbance in the supply of natural rubber products. The rubber cutting season is approaching, with a decrease in raw material output and a seasonal increase in raw material prices. However, this does not mean that domestic futures prices will also follow suit.
In fact, natural rubber prices have distinct seasonality, and futures prices are often weak during the cut off season. Futures trading is based on expectations, so there will be more trading during the shutdown season, with a month on month increase in natural rubber production after future opening, rather than a decrease in production during the current shutdown season. To some extent, the stronger the raw material prices during the cut off season, the more bearish the futures prices will be. The market will expect that after the cut off, natural rubber production will increase significantly under the stimulation of high profits.
In addition, starting from November 2023, the demand for natural rubber has weakened significantly, putting great pressure on domestic natural rubber inventory. In the context of weak demand and high inventory, relying solely on strong raw material prices during the cut off season cannot support the rise in natural rubber prices.
The situation of overcapacity in the future rubber industry may intensify
Looking ahead to the future, Ye Haiwen stated that the supply-demand contradiction in the natural rubber industry may gradually ease, and the price center may shift significantly upwards compared to 2023. The structural and phased bullish market is worth playing, but the probability of a bull market is relatively small.
From a macro perspective, although the current market has a strong expectation of the Federal Reserve's interest rate cut in 2024, looking back on the performance of various categories of assets under the previous interest rate cut cycles of the Federal Reserve, we can find that there is no obvious law among the major categories of assets, except for the trend decline in the yield of the U.S. 10-year treasury bond bonds. In the previous cycles of the Federal Reserve's interest rate cuts, the CRB spot index has not shown a clear upward trend, and commodities including crude oil and Japanese rubber have fluctuated. The Federal Reserve's interest rate cuts are not enough to support the bullish view of commodity and rubber markets.
From the perspective of the industrial supply and demand pattern, the current natural rubber industry has not yet broken free from the pattern of oversupply. Although the total planting area of Southeast Asian major producing countries has slightly decreased in recent years, they still maintain a relatively high position overall. At the same time, emerging rubber producing countries such as C ô te d'Ivoire in Africa have emerged, and the production capacity cycle on the supply side has not yet reversed.
On the demand side, although the market's expectations for the Federal Reserve to initiate a rate cut cycle in 2024 have risen, if the Fed were to implement a "preventive rate cut" before the economy enters a recession, commodities may be able to avoid the drag of weak demand, and the impact of downstream demand is also uncertain. In terms of midstream inventory, domestic inventory is currently at a relatively high level, and the later changes in inventory levels depend more on the import driving force and seasonal performance of arbitrage stocks. "In 2024, before the overall supply and demand cycle reverses, the probability of a bull market for natural rubber is relatively low, but the short-term structural bullish market driven by policies, weather and other factors is still foreseeable. In the later stage, after the return of the price difference between futures and spot prices, pay attention to the opportunities brought by the disturbances (weather, diseases and pests) in the early stage of production area opening in the second quarter." Ye Haiwen said.
Shi Xiaohan stated that in 2023, global natural rubber supply and demand both decreased, and inventory changes were not significant. The focus of natural rubber futures remained basically stable year-on-year. At present, global demand for natural rubber is weak. In 2023, China's demand showed a certain positive growth due to a lower base in 2022, but in other regions of the world, it was negative. In 2024, due to the return of China's base to normal, it is difficult to continue significant year-on-year growth.
Overseas, Europe's economy is struggling to effectively boost against the backdrop of the energy crisis, and the risk of an economic recession in the United States cannot be underestimated. Global demand may continue to experience negative growth in 2023. In terms of supply, due to the continued release of a large amount of production in emerging production areas in Africa, more than 60% of rubber trees in traditional production areas in Asia are less than 20 years old, and there is still great potential for increased production. Moreover, the current abundant rubber cutting profits will also stimulate subsequent production growth.
Under normal weather conditions, global natural rubber production not only does not decrease, but may also increase. Although the fundamentals are not ideal, the absolute price of natural rubber is indeed low, and a deep decline is also difficult. In 2024, natural rubber will continue to experience low and wide oscillations, and attention should be paid to the impact of weather and other factors.
Regarding the development of China's rubber industry, Wang Yuanyuan, a rubber analyst at Zhuochuang Information, analyzed that there are several problems in the current rubber industry: firstly, the industry is large but not strong, with overcapacity. Secondly, the utilization rate of production capacity is generally lower than the world average. Thirdly, some rubber seed plants have low production capacity and lack scale, and low-end products are severely homogenized. High end products still rely on imports, such as isoprene rubber, solution polymerized styrene butadiene rubber, brominated butyl rubber, hydrogenated nitrile rubber, etc.
Ye Haiwen, Chief Analyst of Energy and Chemical Engineering at the Energy and Chemical Engineering Center of China International Trade Futures Research Institute, believes that the decline in natural rubber is caused by the combination of macro and industrial cycles. From a macro perspective, natural rubber, along with steel, coal, and oil, is known as the world's four major industrial raw materials. It is mainly used for tire production, and downstream consumer demand is closely related to automobile manufacturing, logistics transportation, and infrastructure. Therefore, natural rubber has a strong correlation with the growth of the global macroeconomy.
Since 2010, global economic growth has gradually slowed down, and the macroeconomic downturn cycle has dragged down the growth rate of rubber demand. From the perspective of industrial cycle, in the past decade, natural rubber has been in a capacity release cycle, and overall, the growth rate of production release is relatively fast. From 2005 to 2012, ANRPC member countries, especially Thailand, China, Indonesia, and Vietnam, vigorously promoted the cultivation of rubber, with an additional planting area of 563800 hectares.
After the price of natural rubber reached a historical high in 2011, the newly added planting area in 2012 also reached a historical peak. In recent years, new production capacity has gradually entered the market, and natural rubber is generally in an oversupply pattern. Since 2011, natural rubber has maintained a long bear market. Despite being driven by natural disasters and macro factors in 2017 and 2021, as well as brief bull markets, it has ultimately failed to reverse the true nature of the bear market.
Shi Xiaohan, R&D Director of New Lake Futures Chemical, stated that the growth cycle of natural rubber is relatively long, and it takes about 10 years from planting to yield release. The change in supply often lags behind the change in demand, which can easily lead to supply-demand imbalance. The emergence of the natural rubber bull market at the beginning of this century was due to the explosive growth in demand for tires in China, and the inability to keep up with production in a timely manner, resulting in a huge supply gap.
Since 2011, rubber trees planted in the bull market have entered a peak production period, with a large release of production. The balance of natural rubber supply and demand has changed, gradually shifting from supply shortage to supply and demand balance, and prices have entered a downward channel from high points.
After 2015, the growth rate of China's tire production has significantly slowed down, and in 2023, China's tire production was even lower than in 2014. Except for China, there have been no new explosive points in demand for natural rubber in other global markets. Strong supply and weak demand, the balance between supply and demand is once again imbalanced, and natural rubber prices have entered a long bear market. In recent years, long-term low profits have led to a significant slowdown in the growth rate of global natural rubber production, and even negative growth.
However, demand is also weak, and the depletion of global natural rubber inventories is not ideal. In addition, global natural rubber still has a certain potential for increased production. Therefore, in the absence of a significant boost in demand, prices cannot break through upwards.
The popularity of new energy vehicles has limited pulling effect on natural rubber
So, can the current hot new energy vehicles provide support for the rise of natural rubber?
Ye Haiwen believes that the booming sales of new energy vehicles have limited driving effect on the price increase of natural rubber. 70% of downstream consumption of natural rubber is concentrated in tires, which can be divided into semi steel tires and all steel tires. Semi steel tires are mainly used in passenger cars and light trucks, while all steel tires are mainly used in heavy trucks and construction vehicles. About 70% of semi steel tires are used for replacement and 30% are used for matching. A single semi steel tire consumes 1-1.5 kilograms of natural rubber.
About 80% of all steel tires are used for replacement, and 20% are used for matching. A single all steel tire consumes about 30 kilograms of natural rubber. Whether in terms of absolute usage of natural rubber or proportion, the replacement market of all steel tires plays a decisive driving role in the consumption of natural rubber. Despite the current booming consumption of new energy vehicles, the demand for natural rubber is not significantly driven.
In addition, new energy vehicles have a competitive relationship with traditional fuel vehicles, with a significant increase in sales of new energy vehicles, but a decline in sales of traditional fuel vehicles. Structurally, the booming sales of new energy vehicles have driven the overall growth of car sales, but the consumption of natural rubber has limited impact.
Shi Xiaohan also believes that the current hot new energy vehicles are unable to support the rise in natural rubber prices for two main reasons: firstly, natural rubber is mainly used to produce all steel tires, which are tires for large trucks and buses, rather than passenger car tires. The vast majority of new energy vehicles are passenger cars, and passenger car tires account for a small proportion of the demand for natural rubber, and their impact on demand is not significant.
Secondly, there is a trade-off between new energy vehicles and gasoline vehicles. The growth of new energy vehicles to some extent means a decline in gasoline vehicles. From 2021 to 2023, the sales growth rates of new energy vehicles in China were 165%, 96%, and 38%, respectively, while the sales growth rates of gasoline vehicles were -5%, -12%, and 3%. The rapid growth rate of new energy vehicles does not necessarily mean that the overall growth rate of automobiles is fast.
"At present, there are signs of marginal improvement in the fundamentals of natural rubber, and there is some support from supply and demand." Ye Haiwen said that from the supply side, overseas production areas have been affected by weather and pest factors since 2023, resulting in poor raw material output and strong raw material prices in production areas. The production costs of overseas processing plants remain high, production profits continue to be compressed, and inventory of raw materials and finished products is generally low. At the same time, in the first quarter, domestic production areas have entered a period of cutting cessation, and overseas main production areas have also entered a period of production reduction. The support for the natural rubber market on the cost side is more obvious.
The domestic midstream inventory is still at a high level. As of January 26th, there are still over 1.56 million tons of domestic social inventory, and inventory pressure still suppresses the market. In terms of downstream demand, since 2023, driven by external demand, downstream tire factories have had a high operating rate, maintained high growth rates in tire production and exports, and demand has also provided support for prices.
Shi Xiaohan analyzed that the current trend of adhesive prices in Thailand is strong, but this is not caused by a decrease in production, but rather by the replenishment of raw materials by local rubber factories. The domestic futures trading focuses on natural rubber products, non raw material glue, and there has been no significant disturbance in the supply of natural rubber products. The rubber cutting season is approaching, with a decrease in raw material output and a seasonal increase in raw material prices. However, this does not mean that domestic futures prices will also follow suit.
In fact, natural rubber prices have distinct seasonality, and futures prices are often weak during the cut off season. Futures trading is based on expectations, so there will be more trading during the shutdown season, with a month on month increase in natural rubber production after future opening, rather than a decrease in production during the current shutdown season. To some extent, the stronger the raw material prices during the cut off season, the more bearish the futures prices will be. The market will expect that after the cut off, natural rubber production will increase significantly under the stimulation of high profits.
In addition, starting from November 2023, the demand for natural rubber has weakened significantly, putting great pressure on domestic natural rubber inventory. In the context of weak demand and high inventory, relying solely on strong raw material prices during the cut off season cannot support the rise in natural rubber prices.
The situation of overcapacity in the future rubber industry may intensify
Looking ahead to the future, Ye Haiwen stated that the supply-demand contradiction in the natural rubber industry may gradually ease, and the price center may shift significantly upwards compared to 2023. The structural and phased bullish market is worth playing, but the probability of a bull market is relatively small.
From a macro perspective, although the current market has a strong expectation of the Federal Reserve's interest rate cut in 2024, looking back on the performance of various categories of assets under the previous interest rate cut cycles of the Federal Reserve, we can find that there is no obvious law among the major categories of assets, except for the trend decline in the yield of the U.S. 10-year treasury bond bonds. In the previous cycles of the Federal Reserve's interest rate cuts, the CRB spot index has not shown a clear upward trend, and commodities including crude oil and Japanese rubber have fluctuated. The Federal Reserve's interest rate cuts are not enough to support the bullish view of commodity and rubber markets.
From the perspective of the industrial supply and demand pattern, the current natural rubber industry has not yet broken free from the pattern of oversupply. Although the total planting area of Southeast Asian major producing countries has slightly decreased in recent years, they still maintain a relatively high position overall. At the same time, emerging rubber producing countries such as C ô te d'Ivoire in Africa have emerged, and the production capacity cycle on the supply side has not yet reversed.
On the demand side, although the market's expectations for the Federal Reserve to initiate a rate cut cycle in 2024 have risen, if the Fed were to implement a "preventive rate cut" before the economy enters a recession, commodities may be able to avoid the drag of weak demand, and the impact of downstream demand is also uncertain. In terms of midstream inventory, domestic inventory is currently at a relatively high level, and the later changes in inventory levels depend more on the import driving force and seasonal performance of arbitrage stocks. "In 2024, before the overall supply and demand cycle reverses, the probability of a bull market for natural rubber is relatively low, but the short-term structural bullish market driven by policies, weather and other factors is still foreseeable. In the later stage, after the return of the price difference between futures and spot prices, pay attention to the opportunities brought by the disturbances (weather, diseases and pests) in the early stage of production area opening in the second quarter." Ye Haiwen said.
Shi Xiaohan stated that in 2023, global natural rubber supply and demand both decreased, and inventory changes were not significant. The focus of natural rubber futures remained basically stable year-on-year. At present, global demand for natural rubber is weak. In 2023, China's demand showed a certain positive growth due to a lower base in 2022, but in other regions of the world, it was negative. In 2024, due to the return of China's base to normal, it is difficult to continue significant year-on-year growth.
Overseas, Europe's economy is struggling to effectively boost against the backdrop of the energy crisis, and the risk of an economic recession in the United States cannot be underestimated. Global demand may continue to experience negative growth in 2023. In terms of supply, due to the continued release of a large amount of production in emerging production areas in Africa, more than 60% of rubber trees in traditional production areas in Asia are less than 20 years old, and there is still great potential for increased production. Moreover, the current abundant rubber cutting profits will also stimulate subsequent production growth.
Under normal weather conditions, global natural rubber production not only does not decrease, but may also increase. Although the fundamentals are not ideal, the absolute price of natural rubber is indeed low, and a deep decline is also difficult. In 2024, natural rubber will continue to experience low and wide oscillations, and attention should be paid to the impact of weather and other factors.
Regarding the development of China's rubber industry, Wang Yuanyuan, a rubber analyst at Zhuochuang Information, analyzed that there are several problems in the current rubber industry: firstly, the industry is large but not strong, with overcapacity. Secondly, the utilization rate of production capacity is generally lower than the world average. Thirdly, some rubber seed plants have low production capacity and lack scale, and low-end products are severely homogenized. High end products still rely on imports, such as isoprene rubber, solution polymerized styrene butadiene rubber, brominated butyl rubber, hydrogenated nitrile rubber, etc.
Wang Yuanyuan believes that there are three directions for the development of the rubber industry in the future: firstly, with the gradual increase of production capacity, the situation of overcapacity in the industry will intensify, which may force the industry to develop towards integration, concentration, and large-scale, and enhance the competitiveness of enterprises. Some severely homogenized, small-scale, and outdated production capacity may be optimized. Secondly, with the improvement of people's quality of life and the advancement of production technology, downstream tires and rubber products are generally shifting towards high-performance raw material demand. Thirdly, in the context of continuously increasing production capacity, Chinese enterprises will actively explore the international market to seek exports, and the application rate of domestic products will continue to increase.
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