Highlights 

• Chinese buying concentrated on warehouse cargoes
   
• Arbitrage narrows for international cargoes on wintering 
   
• Gradual return of the tire makers expected 

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The rubber market is presently facing an uncertain outlook, shaped by the continuing tensions between the US and China. The ambiguity in trade relations has led to measured market fluctuations, with industry participants meticulously monitoring developments that may influence demand patterns. China, facing a reduction in domestic demand, is likely to postpone significant stimulus measures until later in the year. Market participants are currently analyzing the upcoming National People’s Congress for indications of potential fiscal policies that may impact demand recovery.

The recent price increases in the rubber market can be attributed to the favorable sentiment observed in the Chinese stock market, especially within the technology sector. As enthusiasm diminishes, there is a potential for funds to withdraw, which could result in a market correction. Nonetheless, consistent downstream production coupled with a slight decrease in inventory levels is anticipated to offer short-term support for rubber prices.

The purchasing sentiment in China exhibits a measured optimism, characterized by a growing preference for warehouse cargoes compared to international shipments. This preference has been driven by variations in currency values and elevated global rubber prices. The prices of TSR mixtures have experienced an increase attributed to limited liquidity, while Chinese tire manufacturers are indicating a potential recovery in demand. Disruptions in raw material supply, particularly during the wintering period in key producing regions such as Africa, Thailand, and Vietnam, are contributing to an increase in prices. Furthermore, the impact of severe weather conditions in Indonesia and Thailand has exacerbated supply issues, resulting in diminished output in specific regions.

Source: Helixtap assessment

Market spreads have experienced fluctuations, as arbitrage has narrowed in response to increasing international prices and a depreciating US dollar. The spread for prime STR 20 prices experienced a notable expansion in February, indicative of constrained supply coupled with heightened demand for immediate shipments. In a comparable manner, TSR 20 prices experienced an increase in premiums, influenced by a notable rise in international prices. Nonetheless, in light of these changes, the total trading volumes continued to be constrained.

Inventory levels have undergone modifications, especially in TSR stocks, which experienced a 26% increase in February relative to January. Nevertheless, total stock levels continue to fall short of last year's numbers, highlighting China's inclination towards maintaining domestic inventory rather than relying on expensive imports. There was a slight increase in natural rubber (NR) stock levels, indicating a degree of restocking activity that occurred after the Lunar New Year holidays.

Source: Helixtap analytics & SHFE

The market remains under pressure from macroeconomic factors. Investment activity shows little movement, as evidenced by a decrease in local government spending on infrastructure. The depreciation of the yuan, alongside a decline in domestic demand, has adversely affected China's import volumes. The increase in tire exports alongside the significant decline in rubber imports indicates a shift in trade dynamics and the influence of escalating global prices.

In the future, the rubber market is anticipated to exhibit volatility, influenced by supply limitations, currency fluctuations, and economic policy choices in China.