Weather Disturbances in China Make Rubber Prices Rise

World rubber prices rose sharply, in trading on Tuesday (5/21/2019), following market anxiety over production disruptions in China, one of the largest producers in the world.

Based on Bloomberg data, until 13:15 a.m. WIB, the price of rubber for the October 2019 shipping contract at the Tokyo Commodity Exchange (Tocom) had risen 1.99% or 3.80 points to 194.30 yen per ton.

Quoting Bloomberg, rubber prices rose as traders focused on supply disruptions from China due to hot weather. The sentiment also ignored China’s auto production report falling in April this year. Vehicle production in China reportedly slipped 14.4% in April this year compared to the same period last year.

Meanwhile, rubber inventories in Shanghai reportedly edged up 0.4% to 431,384 tons on a weekly basis, last week. The increase in crude oil prices and the Chinese stock market also became a positive sentiment for rubber prices. China shares became the strongest in Asia on Tuesday (05/21/2019) despite warnings that China could repay US President Donald Trump’s move to blacklist Huawei Technologies.

Associated with weather disruption, the heat wave that hit the province of Yunan, supply source for a half of China’s natural rubber production, has created hazardous working conditions and increased the risk of pests. This prompted Jiangcheng Rubber to stop tapping rubber.

The local meteorological agency warned that temperatures would remain at the level of 40 degrees Celsius in parts of Yunan.

Jia Zheng, portfolio manager at Shanghai Minghong Investments Co. said that rubber prices were in bullish conditions in Shanghai amid a lot of speculation, production in Yunan would be greatly reduced due to hot weather.

According to Jia, the disruption was a big problem for the future for Shanghai, because domestically produced rubber was used to settle physical contracts.

China is a significant natural rubber producer, with production of around 800,000 tons in 2016. At the same time, they are also the largest rubber consumer in the world. The International Rubber Study Group states, the world produces around 14 million tons of natural rubber each year.

Positive sentiment also came from Thailand. The White Elephant Country is reported to be slashing its rubber exports by 126,240 tons next week for 4 months, after a delay in implementing a supply cut agreement with other regional producers.

Thailand should have cut natural rubber exports on April 1, along with Indonesia and Malaysia. The date was an agreement by the International Tripartite Rubber Council (ITRC) consisting of three countries, in March.

These three countries account for around 70% of the world’s natural rubber production. They decided to reduce exports to 240,000 metric tons collectively to support the strengthening of rubber prices.

Thai Rubber Authority Governor Yium Tavarolit said, Thailand, the world’s main rubber exporter, delayed the move because it coincided with the general election in March. It promised to cut rubber exports between May 20 and September 19. “Thailand will run according to the agreement of the three countries, and will assess the results every month,” he told Reuters last week.

He added, if the price of rubber had not moved, it would have to review the size of the trimming.

Previously, a similar agreement had also been implemented by the ITRC at the end of 2017 by cutting natural rubber exports by 350,000 tons for three months.

In addition to curbing exports, the group also agreed to try to significantly increase the use of domestic rubber in each of the three producers through the development of rubber asphalt.