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Helixtap Monthly Production and Consumption Analysis: Consumption data indicative that Chinese demand not yet above pre-pandemic levels

Author: Malcolm Goh (malcolm@helixtap.com)

28 Jun 2023, 11:32 AM SGT

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Highlights

 

  • Production for first four months of 2023 similar to last year despite prices trading in a lower range

 

  • Indonesian production on a declining trend since 2018

 

  • Data indicates that YoY Ivorian production grew consistently since May 2020

 

  • Major consumers estimated to record a 3.5% increase in consumption for the second quarter of 2023

 

  • Consumption data indicative that Chinese demand not yet above pre-pandemic levels

 

  • ANRPC data shows that the world consumed rubber in excess over the last 4 months from February till May

 

Production for first four months of 2023 similar to last year despite prices trading in a lower range

 

Since 2021, the core producer group of countries have mostly recorded a  year-over-year increase in 22 out of the 27 months of available data. This group of  countries include Thailand, Indonesia, Vietnam, China, India, Ivory Coast and Malaysia. They are selected and featured in IRSG monthly report updates.

 

Due to wintering, production throughout the years follows a seasonal pattern, decreasing yearly from February till May. Overall production for these countries has trended upward over time, producing the highest year-long average of 1 million tons of rubber a month in 2022. This year till April, production averaged about 935,000 tons each month. Although this value is lower than last year’s average, it still needs to be seen as the first few months of the year include seasonally low production from February till around May. 

 

Production during these first months in 2023 was reported to range from 0% to 1% YoY decrease over January, March and April. Data for February is not yet available as of end-June 2023. As reported, there has not yet been any significant decrease in production from the same months last year, even though both physical prices and the futures have been trading in a lower range this year. Current IRSG forecasts indicate that production from major producers for Q2 2023 would be at about the same level, increasing by about 4,000 tons or 0.1% to 2.8 million tons. 

 

Indonesian production on a declining trend since 2018

 

Over time, major rubber producers worldwide go through a cyclical trend on a yearly basis due to the wintering season from around February to May. 

 

Since 2008, Malaysia has produced less rubber over time as the country transitioned into being a more developed country. Based on trade flow data for natural rubber-related HS codes, Malaysia started to become a net importer of rubber in 2012. Compared to a range of about 70,000 mt to 110,000 mt in 2008, monthly production fell to the lowest in over 16 years between 25,000 mt to 50,000 mt for 2023 so far. May data shows that Year-over-Year production in April 2023 increased by 2,000 mt to 24,000 mt. Such levels are about a quarter of the levels registered in 2008.

 

The world’s second largest producer in Indonesia has also seen a declining trend in production since 2018. From June 2018 onward, monthly production recorded consecutive YoY reductions consistently for 2.5 years up till January 2021. In 2023 so far, monthly production levels have been trending back to about 200,000 mt to 250,000 mt a month, compared against 250,000 mt to 350,000 mt monthly from 2011 up till 2018. Recently released data for May 2023 indicates production in April has also decreased from 235,000 mt to 221,000 mt from last April. These trends indicate that the overall fall in production from Indonesia has been going on since almost 5 years ago in 2018.

 

The two largest producers in Thailand and Indonesia are both estimated by IRSG to see Q2 production trend down by about 4% from the same quarter last year. On a YoY basis, Thailand recorded the first monthly fall in production in April this year. Based on available data, Thai production grew in 23 out of 27 months post-pandemic from January 2021 till April 2023. Indonesian production only increased about half of the time, over 12 out of 27 months during the same period of time.

 

This trend is likely to have been caused by a combination of poor demand and low  prices. Cumulative oversupply in the rubber market since 2013 would have contributed to this trend of upstream supply being removed from the market. A continued trend of falling supply from these producers is likely when recent margins in mid-June were estimated to be negative for Thai and Indo processors. Gathered market intelligence also confirmed that processors in these regions have been seeing negative margins. This may help to alleviate the oversupply situation in the market over time.

 

Data indicates that YoY Ivorian production grew consistently since May 2020

 

With the exception of Indonesia and Malaysia recording a declining trend in production, other major producers registered an increase in production over time.  Notably, IRSG estimates for Ivory Coast indicate that production in Q2 2023 will grow by about 20% from the same quarter in 2022. YoY, Ivorian production has also been growing consistently since May 2020. Both the Ivory Coast and Vietnam produced around 260,000 mt each in Q2 2022. This year, the aforementioned 20% expected increase in Q2 2023 would mean that about 315,000 tons of rubber would be coming from the Ivory Coast. 

 

In contrast, the same Q2 2023 forecast for Vietnam is that production remains similar with a 1% increase. Additionally, Vietnamese exports are also forecast to exceed domestic production by about 108,000 tons in Q2 2023. Such dynamics reflect the fact that domestic inventory would have to be drawn down significantly in order to meet export needs, as summarised in an article covering Vietnamese exports in May

 

Major consumers estimated to record a 3.5% increase in consumption for the second quarter of 2023

 

Post-Covid, total consumption for major rubber consumers was reported to have increased YoY in 23 out of 27 months since January 2021. This group of countries include China, the Eurozone, India, United States, Thailand and Japan. They are selected and featured in IRSG monthly report updates.

 

Starting from 2007, 2022 recorded the highest average consumption of 902,000 tons of NR a month. In 2023 so far, the monthly consumption over January, March and April are about the same at an average 902,000 tons a month. Similar to production, data for February is not yet available as of late-June 2023. For these 3 months, consumption was reported to fall by 3%, then rose by 1% and 4% for January, March and April respectively. 

 

IRSG estimates consumption for these major consumers to increase by 3.5% to 2.8 million tons in Q2 2023, compared to the same quarter last year. Combining this consumption increase with production at similar levels, the overall market oversupply is estimated to be drawn down by 13,000 tons for Q2 2023.

 

Consumption data indicative that Chinese demand not yet above pre-pandemic levels

 

Earlier in March, China recorded the second highest monthly consumption of natural rubber at 527,000 mt since 2007. Although not yet above pre-pandemic levels at 532,000 tons in November 2020, recent trends have pointed toward an increase in both consumption and imports. Consumption in April 2023 rose 9% from last April to about 503,000 mt. YoY data from 2022 onward also shows that out of 15 months, 11 months registered an increase from the same month one year earlier. For the second quarter of 2023, IRSG forecasts indicate Chinese consumption growing by 7% to 1.5 million mt. 

 

In April 2023, imports registered a 35% increase YoY while the remaining regions all registered a reduction from the previous April. Imports for Q2 2023 are expected to show an increase to around 1.4 million mt, 25% higher than the same quarter last year. Positive trends in consumption and imports by the world’s largest consumer of natural rubber should have given a boost to prices. Consistent oversupply in the market would likely need to be cleared sufficiently, before demand could drive prices.

 

ANRPC data shows that the world consumed rubber in excess over the last 4 months from February till May

Monthly IRSG data for global rubber production and consumption trends are not yet available for 2023. The cumulative surplus registered as of December 2022 stands at about 2.4 million tons. From January till May this year, reported ANRPC data indicates that about 847,000 tons of rubber was consumed in excess of production. 

 

Factoring in the ANRPC cumulative deficit for this year so far, this amount would have been removed from the surplus for an estimated 1.5 million tons still remaining in excess supply. Heading into the remainder of the year, most producers have supply increasing as the respective regions start to exit wintering. The cyclical trends in production would need to be assessed in tandem with demand over time to gauge whether the market would eventually run into a supply shortage.