Review of Spot Market: Positive Factors Weaken, Spot Prices Rise and Fall

Review of Spot Market: Positive Factors Weaken, Spot Prices Rise and Fall

The spot market price of natural rubber in China rose in October and then fell back. After the "Double Festival", the fundamentals of the natural rubber market are still positive. Abnormal weather and phenology in domestic and foreign main production areas interfere with raw material output, resulting in a strong rise in raw material prices. There is a delay in shipping schedules for imported rubber, and inventory at Qingdao Port continues to decrease. The overall performance of automobile production and sales data is better than expected, and downstream operation remains high. The positive fundamentals have boosted the price of natural rubber. In the middle to late period of the month, the inventory reduction rate of natural rubber slowed down, and the speed of finished product inventory turnover by downstream enterprises slowed down. The sentiment of avoiding high prices of raw materials and avoiding risks increased, and natural rubber continued to rise but was hindered. As the rainy weather in the production area eased, the expected inventory of raw materials increased, and the positive factors were digested. After the rise of rubber prices, it fell back.

Supply: Weather disturbance mitigated in domestic and foreign main production areas; weakening expectations for raw material support    

On the Thai side, the rainfall in Thailand's production areas at the beginning of the month still caused disturbance to the rubber harvesting work, and the shortage of raw materials continued, resulting in a strong increase in raw material purchase prices. In the second half of the year, the rainfall in northeastern Thailand has decreased, and there are expectations of gradual increase in production. There are still rainfall disturbances in the southern region, and raw material prices are operating at high levels. However, some raw material prices have begun to show a narrow decline, and cost support is strongly expected to be weak.

On the Yunnan side, with mild rainfall and mild weather conditions, the rubber cutting operation can be carried out normally, and the supply of raw materials is also maintained in a reasonable state. However, some finished products have considerable spot profits, and driven by good downstream orders, the operating rate of processing plants remains at a high level. Among them, state-owned factories actively produce full latex, while private factories produce 9710 and t20 orders at full capacity. During this period, some processing plants stated that block raw materials are in a relatively tight state compared to processing plants operation,and they’re in a relatively strong state compared to the supporting raw materials.

On the Hainan side, with mild rainfall and weak upward trend in concentrated latex spot prices, the profits and shipments of processing plants have been affected. In the second half of this year, raw material prices began to gradually decline, and private factories have weak expectations for raw material procurement sentiment due to poor sales and high actual purchase prices.

Consumption: Tire production and capacity utilization in October decreased month on month

Semi-steel radial tire: During the "Double Festival" period at the beginning of the month, some semi-steel radial tire enterprises have short-term maintenance plans, which has caused a certain drag on the overall construction. The month's domestic and foreign sales have slowed down compared to the previous month, and the domestic sales scheduling has increased to alleviate the shortage of tires in the four seasons. Snow tire production is gradually coming to an end. Overall, the production scheduling for domestic and foreign sales of enterprises has improved, and overall shipments have returned to the normal state. The shortage of domestic sales has gradually alleviated, but due to a large gap in early orders, there is still a shortage of conventional models in some enterprises.

All-steel radial tire: During the "Double Festival" period at the beginning of the month, some all-steel radial tire enterprises have a 3-4 day maintenance plan, which has dragged down the operating rate of all-steel radial tire. During the month, the domestic sales and shipments of most enterprises have significantly decreased compared to the previous month, with a conservative estimate of 20-30%. Foreign trade shipments have slightly slowed down. Overall, the production and sales of all-steel radial tire enterprises have shown a downward trend month on month, with most enterprises currently experiencing no shortage and overall inventory showing an increasing trend.

Future Market Forecast

With the easing of weather disturbances in Southeast Asia's main production areas and the gradual increase in supply, there may be a significant increase in new rubber production, but irregular precipitation in some production areas also has an impact. However, overall global rubber production is showing an increasing trend, with raw material prices expected to fall, cost support weakened, raw material costs decreasing, upstream factories releasing more shipments, and marginal supply pressure gradually increasing. On the demand side, downstream tire and snow tire orders are basically completed, and overseas orders have been replenished, Tire companies may struggle to maintain high levels of production, and the demand for rubber prices is not significantly supportive. As the arrival volume gradually increases, the expectation of domestic natural rubber inventory or accumulated inventory in November is expected to increase, and the bearish fundamentals drag down the expected weakening of rubber prices in November.