On May 19, the main contract of Shanghai Tianjiao hit a strong daily limit, drawing significant market attention. The escalation of Sino-Vietnamese tensions has led to speculation that over half of Vietnam's rubber exports to China are being affected, fueling rumors and shifting the fundamentals of the rubber market. As of the close on May 19, the price of the September contract for Shanghai Tianjiao stood at 14,550 yuan per ton.
The natural rubber market has been volatile, with several instances of daily limits followed by sharp declines in recent months. For example, on February 17, the Hujiao contract closed at 16,400 yuan per ton, only to drop nearly 2,000 points within two weeks. On March 11 and 12, the market hit another daily limit, followed by a lower limit on March 17. By April 23, the price had reached a low of 13,755 yuan per ton.
Analyst Bai Hu pointed out that while some attributed the recent surge in natural rubber prices to the China-Vietnam standoff, this explanation seems incomplete. He questioned why the market would react so strongly now, given that the situation between the two countries has been ongoing for some time. He also raised concerns about the role of speculative funds in amplifying the trend.
Amid growing tensions, the Chinese government has taken measures to suspend certain bilateral exchanges and increase scrutiny on travel to Vietnam. However, no clear impact on trade has yet been reported. Even without an outright ban, Vietnam’s rubber exports to China have declined sharply. According to data from Vietnam’s Ministry of Agriculture, exports dropped by 42% in the first quarter of the year compared to the same period last year. The Vietnam Rubber Association has even called for reducing export tariffs to boost sales.
Meanwhile, China’s port inventories continue to grow. From January to April, the country imported 1.58 million tons of rubber, up 14.5% year-on-year. As of May 15, the Qingdao Rubber Bonded Zone recorded a total inventory of 362,200 tons—its highest level ever. Japan’s port stocks also remain high at 21,800 tons.
With the start of the rubber season in May, production areas in China’s Hainan and Yunnan, as well as parts of Thailand, are fully operational. The International Rubber Study Group (IRSG) recently revised its forecast, estimating a global supply surplus of over 714,000 tons in 2014—more than three times higher than previously expected. This is the largest surplus in a decade.
The falling prices have also dampened the enthusiasm of rubber farmers. In Yunnan, output dropped by 30% to 70% since the Songkran Festival, while Hainan’s production has shifted to latex. Many factories have not resumed dry rubber production. Similar trends are observed in other Southeast Asian producing regions.
As natural rubber prices approach those of synthetic rubber, the gap between latex and styrene-butadiene rubber has narrowed significantly. With the price difference now at zero, the demand for natural rubber could see a boost. Recent warehouse inventory reports show a decline in stock levels, with total inventory dropping to 163,100 tons, and warehouse receipts down by 24.55% from their peak in February.
Analyst Zhao Lei believes that the current market conditions may signal the start of a destocking cycle. Although Qingdao’s bonded zone inventories remain high, their growth has slowed. If import volumes continue to rise, the stock levels could eventually begin to fall.
However, Zhao also warned that long-term recovery in the natural rubber market depends on fundamental changes. Factors such as Thailand’s storage policies and reduced tire plant operations could continue to pressure prices. Only a significant shift in supply patterns could lead to a meaningful recovery. For now, investors should remain cautious as the market remains highly volatile.
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