Global rubber use to grow faster in 2014 on Asian demand

Wednesday, 5 March 2014 00:00 -     - {{hitsCtrl.values.hits}}

  • Rubber demand seen rising 4.4% y/y: IRSG
  • Prices to bottom out in 6-12 months: Olam CEO
  • High inventory, weak TOCOM weigh on rubber prices
KOCHI, India (Reuters): Global rubber consumption is likely to grow faster in 2014 on rising demand from Asia, which along with an expected draw down in massive stockpiles by top consumer China may trigger a rebound in prices, senior industry officials said last week. The industry’s optimism comes amid a tumble in tyre-grade prices to multi-year lows on persistent worries about a slowing economy in China, its high inventory and weakness in benchmark rubber futures in Tokyo Commodity Exchange (TOCOM). The weak rubber market has even prompted the International Rubber Consortium (IRCo), which represents main producers Thailand, Indonesia and Malaysia, to recommend the commodity not be sold at the current low prices. Prices will bottom out in the next 6-12 months as demand from China could return following an expected run down of its stockpiles, said Sunny Verghese, Chief Executive of commodity trader Olam International. “If China grows at 7-7.5%, we should see rubber demand coming back,” Verghese said on the sidelines of a rubber conference in the southern Indian state of Kerala. “Excess stocks currently present will take 6-12 months to work out, after which we will see a more balanced supply-demand condition.” Inventory in warehouses monitored by the Shanghai Futures Exchange has risen to its highest since 2004, while closely-watched stocks in bonded warehouses in the port of Qingdao have jumped more than 11% in the past month to around 340,000 tons. China’s automobile market, the world’s biggest, could post double-digit growth for a second straight year, growing 8% to 10% in 2014, the China Association of Automobile Manufacturers has forecast. The auto industry is the top user of rubber. The International Rubber Study Group (IRSG) expects rubber consumption to rise 4.4% in 2014 after posting a 2.5% increase last year, driven by demand from Asia. Demand for natural and synthetic rubber will hit 27.7 million tons this year, while consumption in India is likely to rise 8.5% to 1.56 million tons as auto demand is expected to rise. “Based on IMF data we are expecting China’s consumption will rise in 2014. So far there is no indication of slowdown in demand from China,” Stephen Evans, the group’s Secretary-General, said in a presentation at the India Rubber Meet in Kochi. Singapore-based IRSG issues forecasts based on several economic scenarios and the current year’s estimate relies on the International Monetary Fund’s (IMF) global economic growth outlook. IMF predicts China’s economy should grow 7.5% this year, and 7.3% in 2015, but recent data has revived concerns over the country’s economy. Tokyo rubber futures tumbled more than 4% on Thursday as downbeat China factory data raised concerns about falling demand and spurred stop-loss selling on TOCOM.