El Nino may not be saviour for depressed rubber market: Trade
Thursday, 22 May 2014 00:22
-
- {{hitsCtrl.values.hits}}
Reuters: El Nino could potentially affect global rubber output this year but the weather anomaly may not rescue prices from near multi-year lows as worries about China’s economy and ample supply weigh on the market, industry sources said on Tuesday.
Benchmark Tokyo rubber futures have sunk to their weakest in more than four years on concerns over demand in main consumer China, even as output drops in Southeast Asia during the dry wintering season, which will end this month.
Global weather forecasters say the likelihood of an El Nino event is increasing, which could be a blessing for rubber prices if the weather phenomenon strikes when the second round of wintering starts, in July through September, and severely cuts supply.
But some rubber analysts at an industry summit in Singapore warned against pinning too much hope on El Nino, a warming of the surface of the tropical Pacific Ocean that can trigger heavy rains or droughts around the globe.
“If there was a fantastic drought in Thailand or Indonesia for the whole season and nobody tapped the trees or some of the trees died, then clearly that would have a pretty negative message,” said Stephen Evans, secretary-general of the International Rubber Study Group.
“That would make the market react. I could see why people hope, but I personally, don’t think that it is relevant.”
But low rubber prices in Thailand, Indonesia and Malaysia, which contribute about 70% of global output, have prompted tappers to either stop tapping or looking for other jobs.
Despite a recent rebound, the TSR20 contract on Singapore’s SICOM exchange, which covers Thai, Indonesian and Malaysian grades, is still not far from its weakest in nearly five years.
The IRSG, which forecasts supply and demand, expects supply to outstrip demand by 241,000 tons in 2014, putting pressure on prices.
“The price of rubber is already too low,” said Asril Sutan Amir, adviser to the Indonesian Rubber Association (GAPKINDO).
“Can you imagine that one kilo of rubber now only equals half a kilo of rice? You should be able to get three kilos of rice by selling one kilo of rubber.”
GAPKINDO expected rubber output in second-largest producer Indonesia to fall around 3% to three million tons this year because of the prospect of El Nino.
Production in top producer Thailand may rise as much as 5% in 2014, less than the usual rate of 10 percent, but industry officials stopped short of linking it to the possible impact of El Nino.
Industry sources said the rubber market was still at the mercy of the state of the global economy and poor demand outlook.
“We are in a period of, I would say, instability in the industry. I think it will probably last for another year or two until we see a shift change in the macroeconomic performance of the global economy,” said Evans from IRSG.
