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Rubber to remain weak despite of producing countries' price intervention measures

The rubber futures traded on the Shanghai Futures Exchange (SHFE) recently experienced an upward movement on optimism that the Thai government pushed forward measures to stabilize rubber prices.

But the upside momentum of the Shanghairubber could be just tentative, in light of its weak fundamentals, said market observers.

 

-- Export cut may have limited impact on boosting rubber prices

Since the beginning of this year, rubber trading has been pale, with the SHFE rubber prices falling to as low as 27,000 yuan/metric ton after breaking the gauge of 29,000 yuan per metric ton in the first quarter.

In order to shore up rubber prices,Thailand,IndonesiaandMalaysiahave jointly announced plans to reduce rubber supply by a total of 450,000 metric tons – 300,000 metrics tons through exports cut and the 150,000 metric tons from rubber tapping delay due to renovation of the rubber planting land.

Thailand has announced that it would reduce its monthly rubber exports by 10% in the upcoming six months, which could underpin a rebound in rubber prices to a certain extent.

Analysts, however, thought the impact of the these price intervention measures might just have limited impact on the market, since the 450,000 metric tons of rubber supply only accounted for 4% of the world’s total rubber production.

 

-- Demand remains tepid with inventory going up high

Downstream demand has been lackluster for quite a while. China’s heavy-duty truck sales stayed at 38,873 units in July, down 23.07% year on year, while the monthly heavy-duty truck output tumbled by 11.64% year on year to 36,590 units, indicating the slowdown of China’s overall industry activity.

Meanwhile, the rubber inventory atChina’sQingdaobonded zone remained high. As of August 16, the inventory figure stood at 240,000 metric tons, including 156,000 tons of natural rubber and 47,000 tons of synthetic rubber. And it seems that the de-stocking process will still take a long time to go through.

 

-- Rubber spot prices in downward path

Along with the constant fall in rubber futures, the spot prices of natural rubber and synthetic rubber have both slid into a downward path.

The prices of emulsion in Shanghai retreated to 21,800 yuan per metric ton, down 1,000 yuan/metric ton, while the USD-denominated rubber products in the Qingdao bonded zone were basically quoted at 2,650 US dollars per metric ton, and some traders could manage to buy for even lower prices. Even so, rubber trading remained thin and slow.

By and large, in view of the weak fundamentals of the rubber industry, the upside of Shanghai rubber is believed to be limited in the near term, with short-term resistance tipped at 23,000 yuan/metric ton.

 

(Contributed by Olivia, olivia@tireworld.com.cn)

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