Rubber Futures at 2017-Highs

Rubber futures extended their rally to trade near 212 US cents per kilogram, the highest level since February 2017, largely driven by firmer oil prices amid stalled US-Iran talks and continued tensions over the Strait of Hormuz. Natural rubber prices track crude oil closely, since rising oil costs make synthetic rubber more expensive and enhance the competitiveness of natural rubber. Meanwhile, the supply outlook has improved with the start of the harvest season in top producers Thailand and Vietnam, while rainfall in China’s Yunnan province has eased earlier concerns over tight supply following heat and drought. On the demand side, reports suggest many Chinese factories have already stocked up ahead of the May Day holiday (May 1–5), which could weigh on rubber consumption in the near term.

Rubber futures climbed to around 205 US cents per kilogram in late April, moving back toward 2017 highs, supported by steady demand from key consumer China. This was reflected in a year-on-year increase in capacity utilisation among sampled semi-steel and all-steel tyre producers, according to Chinese broker Longzhong Information. Rainfall in China’s Yunnan province has also eased concerns about tight supply following earlier heat and drought. Meanwhile, elevated oil prices provided additional support as tensions in the Middle East continued to escalate. Natural rubber prices are closely linked to crude oil, as higher oil prices raise production costs for synthetic rubber, making natural rubber relatively more attractive. Still, gains may be capped by expectations of rising supply as the tapping season approaches in top producers Thailand and Vietnam.

Rubber futures fell to around 203 US cents per kilogram in mid-April, retreating from 2017 highs, weighed down by expectations of rising supply as the tapping season resumed. Additional pressure came from easing oil prices, driven by prospects of renewed US–Iran negotiations, which lowered synthetic rubber production costs and reduced the relative attractiveness of natural rubber. However, losses were partly cushioned by supply-side disruptions in China, where tapping in the key producing region of Hainan was delayed by a heat wave, temporarily tightening availability. On the demand side, China’s car sales fell more than 17% in Q1 after the removal of tax incentives, dampening tire production and natural rubber consumption from the world’s largest consumer.