Market directionless amid consistent bearish demand 

Helixtap Daily Physical Prices Assessment

• 
  Helixtap assessed SIR20 US$1390/mt FOB Belawan Surabaya, down US$10
• Helixtap assessed STR20 US$1440/mt FOB Bangkok Laem Chabang, down US$5
• Helixtap assessed AFR10 US$1380/mt CFR Hamburg Rotterdam, down US$10
• Helixtap implied AFR10 US$1340/mt FOB Abidjan, down US$10

Bearishness in demand amid the spot market treaded downwards. However, the market participants seem uncertain about the outlook. With the combination of lower demand and squeezed margins, the market could see some factories moving out of the rubber sector to other alternatives.

The market was banking on Chinese buying, which did return. However, over-inflated spot prices and some strength in the US dollar shifted their focus to domestic rubber. SHFE stock levels rose around 7% in January, indicating some demand in China, which was primarily catered by domestic traders. "If there is any China buying, it's only the stocks, so not really seen on the FOB market," said a producer source.

Meanwhile, limited interest for STR has weighed on the physical prices, with traders deeming Chinese buying slow. Offers for STR 20 Mixture at US$1480/mt on CIF basis garnered no interest. The situation was similar for African rubber, with some slowdown in buying from Europe and the US buying ahead of any announcement by the Federal Reserve, ECB, and BoE. The natural inclination was towards China. 

According to Helixtap market intelligence offer for AFR 10 at US$1360/mt on CIF basis saw no counter bids. Lack of demand has impacted the margins for small to mid-sized producers. In addition, the availability of raw materials is tightening due to wintering, which is nudging the local raw material prices higher. 

Indonesian prices, too, continued to slide during the day. The traded level for SIR 20 dropped to US$1390/mt on FOB basis for April shipments. The oversupply of raw materials for Indonesian rubber is worsening the situation. 

Producers optimistic of a revival as the market yet to see wintering impact

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1400/mt FOB Belawan Surabaya, steady 
• Helixtap assessed STR20 US$1445/mt FOB Bangkok Laem Chabang, steady
• Helixtap assessed AFR10 US$1390/mt CFR Hamburg Rotterdam, steady
• Helixtap implied AFR10 US$1350/mt FOB Abidjan, steady

Some producers are still optimistic about some rubber price revival despite the market's bearish trend, even though the spot prices treaded sideways amid limited buying interest during the day. 

Amid the talks of wintering and the shortage of raw materials in the market, the current situation looks slightly different from the market expectations. While Thai production has been below 50% and Africa, too, into early wintering, the raw material prices have been under pressure underlining the lack of demand in the market. 

Spot levels have seen correction over the past few days. Even though the market was largely stable during the day, the muted interest impacted the producers. According to Helixtap's market intelligence, ample Indonesian raw material is available in the market. This, coupled with the downcast demand, is likely to maintain the downward pressure on the prices. 

Indonesian producers, who have been seeing consistent negative margins since the beginning of 2022, might only be able to sustain lower prices a bit longer. Therefore, the situation might result in more close-downs over 2023. 

The traded level for SIR 20 was reported in the range of US$1400- US$1410/mt on FOB basis for April and May shipments. However, there were some higher offers for STR 20 in the market at US$1490/mt on FOB basis.

Some of the small-medium Thai suppliers are not in a very good position. As a result, there are still some "not workable" offers in the market. However, a Thailand-based source said, "Some RSS producers are finding it tough to make ends meet at present prices, so a lot of raw material is being diverted to the latex factories."

As an "initial panic reaction" to the talks of early wintering, the uptick in the prices was a bit unreasonable, and the market is resting itself at a more sustainable level. 

Meanwhile, some producers believe that the market is still at an early stage of wintering, and the impact will be more evident in a couple of weeks. "There is wintering effect. Early stage," said a producer source. 

While the tire demand from the advanced economies is likely to improve by Q2, the continued absence of Chinese buyers has impacted the sentiment the most. In addition, there is some caution in the market ahead of any new insight announcement around the trend of interest rates going forward by the Federal Reserve, ECB, and BoE. In addition, the appreciation of the US dollar against most currencies has also been weighing on the buying capacity.

Overbooking slows the spot market 

Helixtap Daily Physical Prices Assessment

• 
  Helixtap assessed SIR20 US$1400/mt FOB Belawan Surabaya, down US$ 10
• Helixtap assessed STR20 US$1445/mt FOB Bangkok Laem Chabang, down US$ 10
• Helixtap assessed AFR10 US$1390/mt CFR Hamburg Rotterdam, down US$ 7.5 
• Helixtap implied AFR10 US$1350/mt FOB Abidjan, down US$ 7.5

Some overbooking in the market weighed on the spot market prices as the buyers slowed down during the Asian trade day. As a result, the week saw a slow start with the price correction across the board. According to Helixtap's market intelligence, there were hardly any buyers in the market, barring the few major ones. 

"Only the two regular majors are in the market. The others slowed down again. So it seems they might still be overstocked," said another Singapore-based trader.

The traded level for SIR 20 dropped to US$1400/mt on FOB basis, while STR 20 saw a wide range of offers during the day ranging between US$1460- US$1490/mt on FOB basis. "US$1490/mt for STR, who is gonna pay?" said a Singapore-based source. 

With the reports of early wintering Thai raw material prices have lately been northbound. However, the producers had to lower their prices last week as there was hardly any buying interest. Moreover, there is a lot of uncertainty amid the producer of the demand situation in the coming weeks as there were reports of a widening bid-offer gap for domestic Chinese cargoes. This is indicative of an oversupplied market and slower than expected revival. 

China opening up its economy did bring in some boost for the market. However, for the relaxation to translate into real-term demand would take a couple of months. Thus, the real buying will likely return at the end of Q1 or early Q2. 

Meanwhile, the demand from Europe and US also remained limited. The buyers are booking but in smaller volumes. This buying is possibly the volume that was not booked under LTC. Thus, the physical volume booking done over and above the LTC seen in 2021 is still missing.

The summary from our predictive forecasting this week:

To see more and compare physical and futures spread, click here. Email any of our team members to understand our forecasting solution.
 

Correction in raw material prices weigh on spot 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1410/mt FOB Belawan Surabaya, up US$ 2.5
• Helixtap assessed STR20 US$1455/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1397.5/mt CFR Hamburg Rotterdam, down US$ 2.5 
• Helixtap implied AFR10 US$1357.5/mt FOB Abidjan, down US$ 2.5

Helixtap weekly Physical Prices Assessment

• Helixtap assessed SVR10 US$1380/mt FOB Ho chi minh, down US$ 45
• Helixtap assessed SMR20 US$1480/mt FOB Klang Penang, down US$ 30
• Helixtap assessed TSR 20 US$1460/mt CIF China, down US$ 20 

Helixtap weekly Raw Material Prices Assessment

• Helixtap assessed Indonesian raw material IDR 19,050/kg ex-works, down IDR 450
• Helixtap assessed Thai raw material THB 40.5/kg ex-works, down THB 1.5
• Helixtap assessed Bulk latex US$1150/mt FOB Bangkok Laem Chabang, down US$ 50

The spot market saw a bearish contrary to the expectation of some revival in the price, banking on the return of the Chinese demand and the early start of the wintering. However, the prices took a nosedive as Chinese buyers opted for the domestic market while raw material prices plunged. 

Drop in raw material prices across the board 

The raw material prices saw some correction during the week owing to bearish demand. According to Helixtap market intelligence, some processors/producers are not too keen to buy raw materials as they are unsure of the demand outlook for next week. “Latex producers are buying less as they are afraid they will find it difficult to sell,” said a Thailand-based source, adding the Thai field latex prices for the week dropped to THB 48-THB 49/kg ex-works.

According to Helixtap data, Thai raw material prices dropped around 3.5% over January. The situation is interesting as there were reports and signs of early wintering in Thailand, which usually tightens the supply in the market. In addition, the production level in Thailand is already under 50%, and the uncertainty makes the situation more complicated. 

“Market is disappointed post Chinese New Year due to the performance at SHFE and inactive Chinese demand. Thus prices dropped fast, even though wintering is just around the corner,” the Thailand-based source added. 

The situation was not different for Indonesian raw material prices, with some softness over the week primarily driven by lower demand. Meanwhile, in Africa, APROMAC too pegged the African raw material prices largely stable over the week, even though some of the smaller producers feel the levels are slightly higher than the set level.

Physical market sees limited activities 

The market activities remained limited, weighing on the prices. Moreover, some depreciation in the Chinese yuan against the US dollar further deterred the Chinese buying interest. While there were reports of some major Chinese tire companies in the market, they opted to buy domestically rather than overseas cargoes. 

The traded level for SIR 20 dropped to US$1410/mt on FOB basis, which was around US$1440/mt earlier in the week, while for STR 20 the traded level during the day was at around US$1455/mt on FOB basis. However, there was a slight uptick in the monthly average of Indonesian raw materials, which is likely to weigh on the margins. 

However, owing to the wide gap between Thai and other sources, namely Indonesia and Africa, the buyers will likely opt for SIR and AFR in the coming week.

Spot slide continues, some producers still optimistic 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1407.5/mt FOB Belawan Surabaya, down US$ 32.5
• Helixtap assessed STR20 US$1460/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1400/mt CFR Hamburg Rotterdam, down US$ 20 
• Helixtap implied AFR10 US$1360/mt FOB Abidjan, down US$ 20

The slide in the spot market continued during Asian trade day amid the lack of Chinese buying in the market, undermining a mellowed Fed rate hike. As a result, the producers struggled to match the market expectations with corrections all across the board, despite the upside in the Asian currencies against the US dollar. 

Indonesian prices join the crash

Indonesian rubber saw the steepest intraday drop as the buying slowed ahead of the rate hike announcements in Europe. While the Fed rate hike was in line with the market expectation lending some strength to the Indonesian Rupiah, the same did not translate into physical prices. 

With the drop in the traded level for SIR 20 in the range of US$1405-US$1420/mt on FOB basis for March to May shipments, the confidence in the market was low. However, some producers were still optimistic despite their downward adjustment in prices.

According to some market sources, though the sentiment is sluggish, the overall indicators are positive, as the raw material supply is likely to see some shortage due to winter. 

Moreover, there has been some uptick in Chinese buying, even though the Chinese buyers continued to prefer domestic cargoes, but the demand returned as expected, the sources said. In addition, some of the other big consumers are also back in the market. 

However, the continued volatility has heightened the apprehension among the market participants. "Quite a seesaw out there," said a Thailand-based source indicating the recent price weakness. The offered level for STR 20 dropped to US$1480-US$1490/mt on FOB basis, with limited buying interest.

Widening bid-offer gap in the Chinese domestic market 

While Chinese buyers have been active post the Lunar New Year holidays, the bid-offer gap for domestic rubber widened during the day. "Don't think anyone will sell at this level," said a market source. 

Meanwhile, the gap between Indonesian and Thai rubber also continued to widen. The gap between SIR 20 and STR 20 was at negative US$52.5/mt on 02 February, down from negative US$30/ on 03 January. The premium for SIR 20 over STR 20 has stayed reversed since September 2022 and is likely to continue until Thailand is out of the wintering.

China shifts focus to domestic market; producers struggle to match 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$140/mt FOB Belawan Surabaya, down US$ 7.5
• Helixtap assessed STR20 US$1465/mt FOB Bangkok Laem Chabang, down US$ 20
• Helixtap assessed AFR10 US$1420/mt CFR Hamburg Rotterdam, down US$ 10 
• Helixtap implied AFR10 US$1380/mt FOB Abidjan, down US$ 10

The spot market prices continued south during the day as the Chinese buying shifted to the warehouse. Meanwhile, the producers struggled to compete with the Chinese domestic levels withering off the gains seen over the past few weeks. 

China is active but domestically 

The Chinese market was active during the day. However, interest in international cargoes remained limited amid the price parity between overseas and warehouse cargoes. According to Helixtap market intelligence, some Chinese buyers are selling off their shfe positions and buying physical cargoes. "Chinese buyers are buying onshore material," said a Singapore-based source. 

There was some active buying from some of the tire majors during the day. However, owing to lower domestic prices, overseas buying interest remained limited. "Local (Chinese buyers) markets have been buying local tender shfe for the past few days since Chinese new year. So USD cargo is pretty weak, and premiums are dropping," said another Singapore-based source. 

The domestic rubber traded level was around RMB 11300 – RMB 11200 ex-warehouse. There is a gap of around US$30 between the STR mixture offers and domestic prices, explaining the lack of interest in the overseas physical market. However, the current buyout would lead to some drop in the SHFE stock level, which might bring Chinese buyers back into the overseas market later in the quarter.

However, African rubber could make some inroads into the Chinese market as the traded level for AFR 10 was reported at US$1415/mt CIF China. 

Meanwhile, the current situation has dented the market's confidence. Even though the Thai producers tried to adjust their offers despite higher raw material prices, they are yet to match up with the domestic levels. The situation could lead to more downside in the prices for the rest of the week. 

Indonesian producers somewhat insulated  

The Indonesian rubber prices saw some drop. However, the correction was marginal compared to other sources owing to its limited exposure to the Chinese market. There was still some buying interest for Indonesian rubber during the day. The traded level for SIR 20 dropped to US$1440-US$1445/mt on FOB basis.

Weak macro-economic indicators 

Meanwhile, weakness in the Asian macro-economic indicators added to the market's pessimism. According to industry reports, China's factory activity contracted in January despite the reopening. There is a lot of uncertainty owing to the slowing global demand and weakness in the European and the US market.

Producers resistant, buyers cautious, spot mixed 

Helixtap Daily Physical Prices Assessment
 

• Helixtap assessed SIR20 US$1447.5/mt FOB Belawan Surabaya, up US$ 5
• Helixtap assessed STR20 US$1485/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1430/mt CFR Hamburg Rotterdam, steady 
• Helixtap implied  AFR10 US$1390/mt FOB Abidjan, steady 

The spot market was mixed during the day owing to resistance amid the producers, given the rise in raw material prices, while the buyers were cautious ahead of top-tier data. In addition, despite China signaling positive growth, the buyers opted to buy domestically, further weighing on the market sentiments. 

Producers held on offers citing higher raw material prices

The rubber producers across the board were unwilling to lower their offers amid some uptick and raw material prices and wintering in most rubber-producing regions. “We are holding our prices. Indo raw material stable, but we are heading into wintering,” said an Indonesia-based source. 

With the reports of wintering in Thailand, Vietnam, parts of Indonesia, and Africa, the producers expect the supply to tighten in the coming weeks. However, according to Helixtap market intelligence, there are still ample stocks in the market to cater to the demand, which is deferring a steep spike in the prices. 

While the offer level for STR 20 continued in the range of US$1490-US$1500/mt FOB Bangkok/Laem Chabang for February to May shipments, the traded level for SIR 20 was marginally up at US$1445- US$1450/mt FOB Belawan/Surabaya for March and April shipments.

Despite some downward bias in the futures market, the producers are confident the physical prices are unlikely to take a massive hit as there is still some buying from the tire majors in the market. 

China prefers domestic stocks over exports

Meanwhile, China continued to be less active in the physical market as they opted to buy from the warehouse. Even though there was a marginal depreciation in Yuan against the US dollar, it was not big enough to impact the buying. 

The resistance amid the producers to adjust the prices shifted the Chinese buying to the warehouse. “There are pockets of buying from China. But the problem is onshore material is relatively cheap,” said a Singapore-based source. The offered level for STR 20 Mixture was at US$1500/mt CIF China May shipments, while the buying interest was at US$1490/mt on CIF basis.

There has been some rise in the stock level post the draw drop in November 2022. However, it is relatively lower than the average. “But as a function of consumption (stocks), the days are higher,” noted a producer source. According to Helixtap market intelligence, some big Chinese traders are trying to take tenders from SHFE. 

Caution on owing to macro-indicators

The buyers, however, remained cautious during the day ahead of the rate hike announcements from the US and Europe. Moreover, despite some upbeat PMI data from China and IMF raising its global growth estimates, there is still some fear of inflation in the market, which has unmined its positives. Furthermore, the expectation of a hawkish stance from the Bank of Japan made the market skeptical.

Oversupplied market despite wintering scare; spot slides 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1442.5/mt FOB Belawan Surabaya, down US$ 20
• Helixtap assessed STR20 US$1490/mt FOB Bangkok Laem Chabang, down US$ 15
• Helixtap assessed AFR10 US$1430/mt CFR Hamburg Rotterdam down US$ 20
• Helixtap implied  AFR10 US$1390/mt FOB Abidjan, down US$ 20

The spot market was southbound during the day against the expectations of some support post-China’s return due to some oversupply in the market. In addition, there was some caution amid the buyers ahead of the rate hike announcements due this week.

While the talks of wintering made rounds in the market, the supply is yet to see the impact. According to Helixtap market intelligence, there are offers for Thai rubber for February, weighing on the pricing sentiment. 

Offers for STR 20 hovered in the range of US$1490-US$1510/mt for February and March shipments, while the reported traded level was at US$1490/mt FOB Bangkok/Laem Chabang. “Thais are talking about early wintering,” said a Thailand-based source.

There were reports of wintering in Vietnam as a producer source noted that it is wintering in Vietnam, and there is no production. The offers in the market were mainly from the existing stock. Thus, the prices might be under pressure until these stocks last. 

China’s return is slower than expected 

Meanwhile, the rebound expected post the return of the Chinese buyers in the market was missing during the day, which impacted the market confidence. While the general expectation was a sideways movement in the prices, the market did not expect a slide during the day. 

It is interesting as the Asian currency saw some appreciation against the US dollar, which ideally should have triggered some buying from China. However, it is just the beginning of the week. The Chinese buyers are possibly holding back to assess the market level or look for opportunistic buying as the stockpile is about 50% of the average.

Other buyers are awaiting direction from Fed

There was an overall caution amid the buyers ahead of the announcement of the rate hikes by the Fed due this week. The general expectation is that the Fed will raise rates by 25 basis points, followed by half-point hikes from the Bank of England and European Central Bank. Any deviation from the expectation might derail the buying momentum and rebound in the rubber prices over the past few weeks.

Even though Indonesian rubber saw some interest from international buyers, the traded level dropped during the day. The situation is critical for the producers as elevated raw material prices and appreciation in Asian currencies have failed to support the prices. Traded level for SIR 20 was reported in the range of US$1440-US$1445/mt for March and April shipments.

The summary from our predictive forecasting this week:

To see more and compare physical and futures spread, click here. Email any of our team members to understand our forecasting solution.

Helixtap would like to issue a correction for Helixtap Indonesian raw material assessment -- IDR 18,700/kg and Helixtap Thai latex assessment – US$1105/mt published on January 27, 2023. 

Corrected assessment – 

• Indonesian raw material -- IDR 19,500/kg ex-works; up IDR 1000
• Thai latex – US$ 1200/mt; up US$155

Producers apprehensive ahead of the China return

The spot market rally paused during the day owing to apprehension amid producers ahead of China’s return next week, despite some support over the week due to some buying from the tire majors.

Amid some early wintering reports in Thailand and Africa too prepping for wintering, the producers paused to assess the market situation. While the active buying from the major tire makers was expected to return, given the lower volume booked for long term contracts, the situation is still uncertain.

This could be an excellent boost for the rubber prices, given the SHFE stockpiles are about 70% of the amount before the November drawdown when the market closed last week. In addition, a slew of data showcasing some strength in the U.S. economy and slowing inflation would also boost market confidence.

Wintering plays a key role; producers cautious   

An early wintering in Thailand could push the prices higher. “The latex price is still up like a rocket,” said a producer source. According to Helixtap market intelligence, the wintering in Thailand is also early this year and is expected to be longer.

“Trees are not healthy, and green leaves are falling fast too,” the producer source noted, adding the impact is predominant in southern Thailand, the key rubber-producing region.

In 2022, STR prices rose around 4% over January and February, while this year, over January, the prices have increased by almost 9% compared to December.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1505/mt FOB Bangkok/Laem Chabang, down US$ 10 from January 26, 2023. Helixtap Thai raw materials prices, however, rose to THB 42/kg ex-work, up THB 3, and Bulk latex at US$1200/mt, up US$155, over the week.

The situation is also similar for the African market, with some tightness in raw material supply. “Typical of January. Planters accumulate before stopping for wintering and deliver in one shot. Looks like a normal rhythm for now,” said a market source.

This has resulted in some drop in the excess raw material stocks with the processors, making them cautious about offering in the market. In addition, the fluctuation in the exchange levels has also been impacting the African producers, impacting their confidence.

Meanwhile, there were talks of some disparity in pricing for African raw materials domestically. However, the market sources noted that the trend had been there for the past two-three months.

Helixtap African Rubber (AFR) 10 at US$1450/mt CIF Rotterdam/Hamburg, down US$15 on January 27, 2023.

Source: Helixtap
 

Indonesian producers are jittery despite being the most economical

Even though the demand picture looks positive, Indonesian producers are cautious. In the current market scenario, Indonesian rubber is the most economical option in the market. The January average gap between the Indonesian and Thai rubber is at negative US$37, while the average gap in January 2022 was US$1/mt.

Source: Helixtap

Making the situation more difficult is that the Indonesia raw material prices uptick was steeper than Thai raw materials during the week. As a result, the Indonesian producers’ margins will be severely under pressure, given the scope for imports of low cost African raw material is limited.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1462.5/mt FOB Belawan/Surabaya, down US$12.5 on January 27, 2023. Helixtap Indonesian raw materials prices rose to IDR 19,500/kg ex-work, up IDR 1000 over the week.

China’s return awaited

While the Chinese market was closed for the week for the Lunar New Year holiday and will reopen on January 30, the market awaits the Chinese buying to return. There is an expectation that economic activities in China will pick up post the removal of its COVID-19 curbs.

The narrative around China is bullish. However, there are still some doubts about the real strength of consumer demand, and there is also a possibility of some inflationary pressure building up. While this is positive for rubber prices, it could push the market back to the vicious cycle of rate hikes and recessionary pressure. Helixtap TSR 20- CIF China prices remained unchanged at US$1480/mt CIF China over the week.

Positive Sentiment in the absence of China across all grades show return of international consumer spot interest

(26 Jan) 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 1,475 USD/MT FOB Belawan Surabaya
• Helixtap assessed STR20 1,515 USD/MT FOB Bangkok Laem Chabang
• Helixtap assessed AFR10 1,465 USD/MT CFR Hamburg Rotterdam
• Helixtap implied  AFR10 1,430 USD/MT FOB Abidjan

Major Consumer shows continued March interest, keeping spot prices strong

Indonesian cargoes traded large volumes today, with a European tyre major back in full force and looking for March cargoes. Prices traded were between 1,465 - 1,480 FOB Belawan Surabaya for March. 

Thai sellers were offering at a higher level, but due to cheaper Indonesian cargoes and the absence of China, traded much lower volumes. Sellers were holding on to their offers, but were willing to trade at a discount, i.e. 1,500 USD/MT as many prompt cargoes (Feb loading) were still available.

Helixtap has reported the presence of major consumer interest in March loading since the start of this year, with the most recent update on 17th Jan 2023.

Trade flow to the USA has picked up a little, compared to the previous month, and we note prices on an FOB basis are around 1,430 USD/MT FOB Abidjan. Some African producers Helixtap spoke to said, “Demand in the US and EU has been slower than usual, but we are anticipating more interest for March and April shipments”. This is in line with Helixtap’s market intelligence on early wintering in Africa.

Thai Raw Materials Weekly Assessment dips below Indonesian 

Thai cup lump prices crossed 40 THB today, with the average being 41- 42 THB/Kg. This represents a +3 THB/Kg level from last week. This week, whilst both Indonesian and Thai processors experienced an increase in raw material levels, it could signal more competitive Thai cargoes in the coming week when China reopens. Many are expecting early wintering, but looking at Helixtap’s data from last year, Indonesian raw material was 43 USD/MT higher than Thai raw material, and the widest differential between Indonesian and Thai raw materials was above +350 USD/MT during the wintering period.

Image 1: Raw Material Prices Oct 2021 - Date

How will China react next week?

With prices being supported this week, China’s return is expected to continue this bullish trend. A producer source Helixtap spoke to said, “Prices have been trending upwards even without Chinese buying this week, it seems the market is expecting that to continue this when China reopens next week.”

Looking at inventory data from SHFE just before the Lunar New Year, stockpiles are about 70% the amount before the November drawdown. This indicates further possibility of spot interest and buying next week.

Image 2: SHFE Deliverable Analysis
 

Quiet market moves upwards, whilst awaiting China’s return

(25 Jan) 

• Helixtap assessed SIR20 1,465 USD/MT FOB Belawan Surabaya
• Helixtap assessed STR20 1,495 USD/MT FOB Bangkok Laem Chabang
• Helixtap assessed AFR10 1,430 USD/MT CFR Hamburg Rotterdam

With China away from the market this week and other parts of Asia having a short week, there was muted activity and volume traded today.

Many Indonesian processors tried offering at 1,480 USD/MT for April FOB Belawan Surabaya, but lamented “there is only one buyer in the market today for SIR20 and they are bidding too low”. Sources Helixtap spoke to noted bids of USD/MT 1,450 - 1,460 FOB Belawan Surabaya for March / April loading.

Comparatively, Thai producers managed to sell some volume at USD/MT 1,500 FOB Bangkok Laem Chabang for April cargoes. However, February prompt loading cargoes were still available. This probably indicates that buyers have filled their positions for February and the contango should be higher between February and March and April where sellers are seen to be more cautious. Some Thai sellers were seen at USD/MT 1,530 for April cargoes too. 

Raw Material Spikes & Currency Moves Lead the Way

Producing countries' currencies continued to remain strong against the USD, which impacted producers margins negatively. Indonesian raw material spiked to above 19,000 IDR/Kg whilst field latex in Thailand went above 50 THB/Kg today. 

Indonesian Rupiah went below 15,000 against USD whilst Thai Baht remained under 33 against USD. 

For Thai processors, they now have some margin, and we should expect sellers to try to lock in more sales at 1,500 USD/MT levels. However, that may have to resume once China is back next week. 

For Indonesian processors, they too have some margin (though now just about par) at the 1,460 - 1,470 USD/MT levels. If the Indonesian suppliers continue to remain competitive, this may keep a lid on the Thai processors. 

African sellers and Latex sellers exhibit caution

African processors have noted more leaf fall, earlier than previous year and are exhibiting some caution in offering. This has continued for close to a month, and has reduced any previous excess raw material that processors have stockpiled. Furthermore, some suppliers have noted “Currency not only affects the Asian sellers - our stronger Euro against the USD means raw material for us is also more expensive”. Today, most African sellers chose to sideline or offer cautiously. 

Thai raw materials were seen to increase about 5 THB/Kg from just before the Lunar New Year holidays. 

Producers’ margins under pressure on volatile demand and currency

Some Thai rubber producers were struggling with a cash crunch amid the current price and demand volatility. While the week closed at a higher-level owing to some last-minute restocking from China and the return of some tire majors, the market lacked confidence for a sustained recovery.

Thai producers struggling

Amid the uncertainties, some Thai producers were seen struggling with some cash crunch. While there is some drop in Thai production and a possibility of early wintering, the lack of demand has resulted in a decline in raw material prices. 

"Our factories just informed field latex supply is already decreasing. So we have to get cautious. But not much demand either," said a producer source.

"Don't think many (producers) are willing to sell if they don't get the price. But to be cautious, specifically for latex. Better to be…," the producer source added. While Chinese buying has been strong this week, it was primarily a part of some short covering. In addition, there is skepticism in the market around the recovery in demand in February.

The situation turned tricky due to the appreciation in the Thai Bhat against the US dollar, which limited the processors' buying capacity. As a result, some processors were cautious about buying raw materials due to limited liquidity. 

STR prices rose around 5% over the week, while raw material prices dropped 4%. This would have been a very beneficiary week for the producers, but the Thai Bhat appreciated to 32.84, the highest since March 2022 against the US dollar.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, unchanged from January 19, 2023. Helixtap Thai raw materials prices, however dropped to THB 39/kg ex-work, down THB 1, and Bulk latex at US$1045/mt, down 50, over the week.

Indonesian rubber failed to catch up

Even though the sentiment was not bearish, the appreciation in the Asian currency kept the Indonesian producers' margins under pressure. As a result, some producers who rely on the currency differential to book profits took a hit. "Indonesian producers cannot make it no matter high or low premium," the source said earlier this week.

Indonesian rubber continued to be the most economical option in the market, and return of some of the tire majors supported the prices. However, the rise in the SIR 20 was relatively muted during the week.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, unchanged from January 19, 2023. Helixtap Indonesian raw materials prices, however dropped to IDR 18,500/kg ex-work, down IDR 200, over the week.

According to Helixtap market intelligence, some tire majors were back in the market since last week but were buying in small quantities. However, this week there was a significant improvement in buying. There was some buying back from Europe. The US market has been sluggish for over a month. As a result, African producers were too looking into the Asian market and China.

Wintering to start in Africa in February

Low-cost African raw materials imports aided some of the larger Indonesian producers to adjust their prices. However, wintering is likely to start in Africa soon as well. According to market sources, the Ivory coast's raw material will likely slow down as it is past the peak production season. There has been some rise in the local raw material prices as local factories are fighting to stock up on material for wintering in the Ivory coast as well.

Helixtap African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, unchanged from January 19, 2023.

Holiday mood seeps into spot market; Thai producers facing liquidity issues

The spot market slowed during the day before the Lunar New Year holidays as most buyers were away from the market. Meanwhile, amid the price volatility and muted demand, some Thai producers are dealing with a cash crunch.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, and African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, all down US$10 on January 19, 2023.

Market activities muted

Market activities remained muted, with most Chinese buyers away ahead of the Lunar New Year holidays. Some of the international buyers took a step back to assess the market situation. According to Helixtap market intelligence, there were some Japanese buyers buying Indonesian rubber; otherwise, the market was largely quiet. “(The market) Super quiet. Most Chinese traders are already on holiday,” said a Singapore-based source.

While the producers adjusted their offer to allure buying, there was limited interest for Thai rubber. The offer level for STR 20 was around US$1480/mt FOB Bangkok/Laem Chabang for March shipments, and for STR 20 Mixture was around US$1500/mt on CIF basis.

There is a lot of skepticism around the return of buying from China post the holidays. Even though some believe the demand is expected to pick up, given the lower inventory level, inflation however, could be a big deterrent.

While the traded level for SIR 20 dropped to US$1410- US$1425/mt FOB Belawan/Surabaya for March and April shipments, some producers opted to stay out of the market.

Some positive from US data, no impact on spot

While there were some signs of improvement in global economic health with a drop in the US price of wholesale goods and services for December, in addition, the annual rate of inflation in UK also dropped to 10.5% in December. This, however, failed to prop up the market sentiment.

The market participants expect improved buying from Europe and the U.S.US by the end of the first quarter or early second quarter. However, with rising covid cases in China, the possibility of another wave in 2023 cannot be ruled out.

Cautiously optimistic buying stalls the rally in spot prices  

Cautiously optimistic buying during the Asian trade day kept the prices northbount but capped the price rally. While the producers tried to push the prices up on an optimistic outlook, the international buyers held back, widening the bid-offer gap

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1425/mt FOB Belawan/Surabaya, up US$25, Standard Thailand Rubber (STR) 20 at US$1470/mt FOB Bangkok/Laem Chabang, up US$10, and African Rubber (AFR) 10 at US$1425/mt CIF Rotterdam/Hamburg, up US$5 on January 18, 2023.

The buyers unwilling to match the offers

While the optimistic outlook on Chinese demand has supported the physical rubber prices, there was some resistance from the buyers. According to Helixtap market intelligence, international buyers are not too keen on the existing levels as they still feel that the market is oversupplied.

The tire makers' buying has picked up since last week, but the volume has been limited. "Buyers still not what one might call abundant," said a producer source. However, given the reports of possible early wintering in Thailand coupled with Thai rubber might be some supply tightness in the coming weeks. The offered level for STR 20 was around US$1480- US$1490/mt FOB Bangkok/Laem Chabang for February and March shipments during the day.

Indonesian rubber, on the other hand, saw some widening of the bid-offer gap owing to limited bargaining power. While the traded level for SIR 20 increased to US$1420- US$1430/mt FOB Belawan/Surabaya, the offers were around US$1440- US$1465/mt on FOB basis. "Buyers are cautious about chasing too high," said a Singapore-based source.

Europe and US yet to catch up 

While the European market is slowly catching up, it is yet to see real active buying especially given the lower volume in LTC for 2023. Moreover, car sales in most European markets have seen negative growth in 2022, baring Germany. However, the market is likely to pick up with an easing supply chain situation and improved availability of semiconductor chips. The optimism was seen in the African prices, and the offers for AFR 10 were around US$1425-US$1445/mt on CIF Eu main ports basis.

Meanwhile, the US market has been sluggish for the past couple of months amid the inflationary pressure and Fed rate hikes.

Spot rallied on upbeat tire makers outlook & China restocking

Spot market rallied during the Asian trade day with the return of some of the major tire makers and some last moment restocking from China, driven by some positive global cues. However, while the producers tried to book profits, there was some caution amid the market.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1405/mt FOB Belawan/Surabaya, up US$35, Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, up US$65, and African Rubber (AFR) 10 at US$1420/mt CIF Rotterdam/Hamburg, up US$50 on January 17, 2023.

Lower LTC volume brings tire makers back

The return of some of the major tire makers in the market boosted the market confidence during the day. Even though some major tire guys have been back in the market since last week, the lo wer volume booking failed to prop the market.

However, according to Helixtap market intelligence, a few more joined the buying spree during the day, supporting the physical market. Earlier than expected return of the buyers in the market could be owing to lower term contract volume booking coupled with some improvement in the tire makers’ outlook for 2023.

The traded level for STR 20 was around US$1470/mt FOB Bangkok/Laem Chabang for March shipments, while the traded level for SIR 20 was at US$1400/mt FOB Belawan/Surabaya. However, the gap between the Thai and Indonesian rubber continued to widen despite the jump in the market.

“Tyre majors are back in the market since last week but were buying in small quantities. But a significant development (today), said a producer source. While there was some buying back from Europe, the US market has been sluggish for over a month. As a result, most producers were looking into the Asian market and China.

Last moment restocking in China, sentiment supported by strong car sales data

Some active buying was seen from China during the day, especially after positive car sales data and better-than-expected GDP data. Vehicle sales in China saw a 2.1% increase in 2022 compared to 2021 levels, according to the China Association of Automobile Manufacturers (CAAM).

With the relaxation in the Covid restrictions and a huge drop in the inventory level at the end of November, the Chinese tire makers were upbeat about 2023. According to Helixtap market intelligence, the traded level for the STR 20 mixture shot to US$1480-US$1490/mt level on CIF basis, while for AFR 10, it was at US$1410/mt on CIF basis.

While some believed the current spurt is more of a short covering before the Chinese New Year, others feel the uptick could continue to post the holidays. There is still some caution in the market, given the matured markets are yet to catch up. However, given the easing supply chain disruptions and improved availability of semiconductors chips, the market is likely to be positive for the week.  

Appreciation in currency supports spot, demand sluggish 

The spot market found some support during the Asian trade day, driven by the appreciation in Asian currencies despite limited demand. China is also slowing down ahead of the Lunar new year.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1370/mt FOB Belawan/Surabaya, Standard Thailand Rubber (STR) 20 at US$1395/mt FOB Bangkok/Laem Chabang, and African Rubber (AFR) 10 at US$1370/mt CIF Rotterdam/Hamburg, all up US$10 on January 16, 2023.

Appreciation in currencies squeezes margins

The spot prices found support owing to the appreciation in the Asian currencies against the US dollar. While this is a positive for the market, the situation is getting grimmer for the producers amid rising raw material prices and slowing demand.

“Sentiments not bearish, at least. Currency moves are supportive for sicom,” said a Singapore-based source. Even though the sentiment was not bearish, the margins are under pressure. Some producers who rely on the currency differential to book profits would be taking the hit. “Indonesian producers cannot make it no matter high or low premium,” the source added.
 

While the raw materials have been northbound, the producers are walking a thin line between balancing cost and matching the market expectations. The offers for STR 20 were at around US$1420- US$1430/mt FOB Bangkok/Laem Chabang for February and March shipments, while the traded level for SIR 20 was at US$1370/mt FOB Belawan/Surabaya.

The broadly positive cues from global markets owing to positive US consumer price inflation and consumer sentiment data raised hopes of the Fed slowing its pace of rate-hike coming months. However, it failed to stir more buying in the market, clearly cautious about Chinese demand post-Chinese New Year.

China slowed ahead of the holidays

The Chinese buying slowed down this week as most buyers are already away for holidays, indicating a less active week. “Some buyers are already on CNY holiday. Have yet to see any interest from the international side. No bidding yet,” said another Singapore-based source.
 

The summary from our predictive forecasting this week:
 

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Boost in market activity heading into Lunar New Year festive season

Since the year began, market prices recorded two straight weeks of increase above the levels seen late last year. Amidst ongoing concerns on the spread of Covid-19 via the Chinese border reopening, prices were observed to move in an inconsistent directional pattern. The net move upwards reflects a bullish start to the year as Chinese buyers resumed restocking prior to the festive season.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1,360/mt FOB Belawan/Surabaya, up US$15/mt, Standard Thailand Rubber (STR) 20 at US$1,385/mt FOB Bangkok/Laem Chabang, up US$5/mt, and African Rubber (AFR) 10 at US$1,360/mt CIF Rotterdam/Hamburg, unchanged on January 13, 2023. Additionally, TSR20 Mixture CIF China was assessed at US$1,425/mt, up US$5/mt.

Market intelligence suggests offers for STR20 (March 2023) shipments are in a range from US$1,410/mt to US$1,420/mt. SIR20 (March 2023) shipments were traded in a range of about US$1,325/mt - US$1,335/mt at the start of the week to about US$1,355/mt to US$1,365/mt on 13 Jan 2023. 

In the rubber futures, prices for the first four positional contracts ranged from US$1,287/mt to US$1,343/mt in end-December. As of Thursday on 12 Jan 2023, the same prices recorded an increase and ranged from US$1,357/mt to US$1,398/mt. The difference represents an increase of US$54/mt to US$70/mt across the four positions, reflecting the price optimism seen in the physical rubber market. 

In the physical rubber market, assessed prices for physical rubber grades also increased since late last year. Compared to the assessments above, STR20 and SIR20 prices rose by US$37.5/mt and US$47.5/mt respectively. For AFR10 and TSR20 China Mixture prices, a US$27.5/mt and US$20/mt respective increase was recorded.

Helixtap assessed Indonesian Raw Materials at IDR18,700/kg, up 200 IDR/kg ,Thai Raw Materials at THB41/kg, down 1 THB/kg and Thai Latex at US$1,095/mt, up US$20/mt. 

Source: Customs Data, Helixtap

As major supply sources in Thailand head into the wintering season, an expected shortage in supply would likely have a positive impact on price floors. Every year, wintering in rubber trees causes supply levels to fall significantly. Just last year, the same phenomenon was observed in Thai Raw Material exports into China via the HS code 400129. Naturally, Helixtap price assessments for Thai Raw Materials showed an increase in average monthly price levels up till March 2022. Afterwards, prices fell below the levels observed in December 2021 toward the end of the wintering season. 

Post-CNY, wintering in Thailand and Africa are expected to result in tight supply. Depending on the strength of demand, sellers in alternative locations in Indonesia and Vietnam may be able to capitalise and offer into China. As of early January 2023, SHFE inventory deliverables in  warehouses stands at a relatively low level of around 187,000 tons. This amount is about 27% lower than the average weekly inventory level seen in the past 52 weeks. Historically, this value is also about 34% lower than the historical average of about 284,000 tons on a weekly basis. 

Seasonally, physical market prices for STR20 and SIR20 were also observed to increase over most Januarys. For SIR20, prices increased over January in the last 6 years from 2017 to 2022 while STR20 prices either increased or stayed at the same level. As warehouse supplies are relatively lower than on an average week, a resumption in Chinese demand post-CNY may help in price recovery as well. Chinese buyers would be likely to continue importing via the global rubber market due to lower-than-average domestic inventory levels after the festive season. 

Market loses steam amid limited activities

The spot market slowed as the buying mellowed ahead of the Chinese new year, pushing the prices slightly down despite the strength in the regional currencies.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1345/mt FOB Belawan/Surabaya, down US$5, Standard Thailand Rubber (STR) 20 at US$1380/mt FOB Bangkok/Laem Chabang, down US$5, and African Rubber (AFR) 10 at US$1360/mt CIF Rotterdam/Hamburg, down US$10 on January 10, 2023.

While the market is still uncertain about the post-Chinese new year recovery, the current seasonal lull is expected. Meanwhile, the raw material prices, especially in Thailand, are high owing to some shortages and the possibility of early wintering. The producers were finding it difficult to book profit at these levels. The offers for STR 20 were at around US$1410- US$1420/mt FOB Bangkok/Laem Chabang for February and March shipments.

Meanwhile, some Indonesian producers who had been banking on low-cost raw material imports from Africa are likely to witness some setbacks as Africa would too start wintering in February. So, according to Helixtap market intelligence, some of the African producers would start restocking before wintering, possibly pushing the African raw material prices up.

The demand for Indonesian rubber has slowed down over the past year due to the higher cost. However, despite being the lowest denominator in the market, it has failed to make inroads into China or other markets.

In addition, lower volumes booked for long-term contact are likely to add to the pressure. Finally, some producers expect a return of some of the big European buyers by the end of the first quarter might push the market sentiment up. However, given the overall bearish cues from demand, the outlook looks uncertain. 

Optimism in the market, producers see better market activities

Spot rubber market was active during the Asian trade day with some uptick in the prices supported by some Chinese restocking and strength in the Asian currencies against the US dollar ahead of the US inflation data release.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1350/mt FOB Belawan/Surabaya, up US$15, Standard Thailand Rubber (STR) 20 at US$1385/mt FOB Bangkok/Laem Chabang, up US$15, and African Rubber (AFR) 10 at US$1370/mt CIF Rotterdam/Hamburg, up US$10 on January 11, 2023.

Optimism on Chinese restocking and currency support

There was some active buying in the market during the day with continued interest from China, who are restocking. However, the market is still jittery about the post-Chinese New Year demand as several tire makers are likely to reduce their production during the holidays from the boosted levels at the moment.

The optimism was, however, further supported by the strength in the Asian currencies against the US dollar. Indonesia's rupiah saw the highest day-on-day jump amid other Asian currencies. As a result, the traded level SIR 20 increased to US$1350/mt FOB Belawan/Surabaya for March shipments.

According to market sources, the positive sentiment around Asian currencies and China's borders reopening has kept the market confidence up. While the offers for STR 20 were at around US$1420/mt FOB Bangkok/Laem Chabang for February to April shipment, some higher offers were also reported at US$1460/mt.

With some possibility of early wintering in Thailand like last year, the Thai rubber, despite losing its competitive edge in the market, saw an uptick. As a result, there was some buying interest for the STR 20 mixture at around US$1460/mt on CIF basis for May/June shipment. However, if the uptick in Thai rubber prices continues with China holding on to its reopening post-Chinese New Year, China might move to other alternatives like Indonesian, Vietnamese or African rubber.

Macro factors that might impact

While the demand from Europe and the US is still subdued, a lot would ride on the upcoming US inflation data, which would decide the course of the rate hikes from the Fed. While the general market expectation is the hike is likely to slow down this year, A downgrade in the growth outlook by the world bank has wavered the market confidence.

For the US economy, the world bank dropped its growth forecast to 0.5% from 2.4%, and a similar downgrading was seen for China and Japan, which are the key rubber consumers.
Even though China has reopened, a faster-than-expected move has posed a question on the sustainability of the uptick in the market amid the rising cases in the country.

Volatility continues; Widening Indo-Thai firm gap could open arbitrage into China

Volatility in the spot market continued with some Chinese buying back. With higher raw material prices, Thai rubber continued its uptick while the widening gap between Indonesian and Thai rubber, some Indonesian rubber, is possibly making its way into China. 

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1335/mt FOB Belawan/Surabaya, up US$7.5, Standard Thailand Rubber (STR) 20 at US$1370/mt FOB Bangkok/Laem Chabang, and African Rubber (AFR) 10 at US$1360/mt CIF Rotterdam/Hamburg, both up US$5 on January 10, 2023.

Possible arbitrage for Indo rubber into China

The widening gap between Indonesian and Thai rubber could have opened the arbitrage into China, especially ahead of the Lunar New Year holidays. Even though China does not traditionally import Indonesian rubber, in September 2022, there was an uptick in Indonesian rubber exports to China. 

Source: Helixtap & Customs data

The gap between Indonesian and Thai rubber continued to widen and is currently at around negative US$35/mt, down from US$35 on January 03, 2022. The spread has been consistently in the negative territory since mid-September after reaching as high as US$125/mt in May 2022.

While in September 2022, producers with some presence in Singapore had the arbitrage factor working for them as the freight is relatively less from Singapore to China than from Indonesia to China. The situation is very similar in the current market situation as well.

Source: Helixtap 

Meanwhile, African sellers have also been selling very competitively into China as most consumers needed to lock in more volume on LTC, and many producers expect a demand increase in March.

There was some buying interest from China during the day as the STR 20 mixture was reportedly traded at US$1430/mt on CIF basis, while the traded level for AFR 10 was at US$1345/mt on CIF basis.

Support for Indo for being the lowest cost denominator 

Indonesian rubber found some support amid buying from the major tire makers during the day. During the day, the traded level SIR 20 hovered between US$1335- US$1360/mt FOB Belawan/Surabaya for March and April shipments. "Indo spot price is so low, there are no favorable to support STR spot price," said a Thailand-based source.

Thai producers struggling

While on the one hand, appreciation in Thai Bhat has been nudging the prices up, the raw materials, on the other hand, remained short in supply. Moreover, there are reports of increased rainfalls in the region, possibly tightening the supply further. "Rain is about to come and hit us again, and the supply is less than last year," said a producer source. In addition, some producers might be seen struggling with cash flow given the market's limited support and China soon-to-close on account of the Lunar New year holidays.

Correction in raw material prices weigh on spot 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1410/mt FOB Belawan Surabaya, up US$ 2.5
• Helixtap assessed STR20 US$1455/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1397.5/mt CFR Hamburg Rotterdam, down US$ 2.5 
• Helixtap implied AFR10 US$1357.5/mt FOB Abidjan, down US$ 2.5

Helixtap weekly Physical Prices Assessment

• Helixtap assessed SVR10 US$1380/mt FOB Ho chi minh, down US$ 45
• Helixtap assessed SMR20 US$1480/mt FOB Klang Penang, down US$ 30
• Helixtap assessed TSR 20 US$1460/mt CIF China, down US$ 20 

Helixtap weekly Raw Material Prices Assessment

• Helixtap assessed Indonesian raw material IDR 19,050/kg ex-works, down IDR 450
• Helixtap assessed Thai raw material THB 40.5/kg ex-works, down THB 1.5
• Helixtap assessed Bulk latex US$1150/mt FOB Bangkok Laem Chabang, down US$ 50

The spot market saw a bearish contrary to the expectation of some revival in the price, banking on the return of the Chinese demand and the early start of the wintering. However, the prices took a nosedive as Chinese buyers opted for the domestic market while raw material prices plunged. 

Drop in raw material prices across the board 

The raw material prices saw some correction during the week owing to bearish demand. According to Helixtap market intelligence, some processors/producers are not too keen to buy raw materials as they are unsure of the demand outlook for next week. “Latex producers are buying less as they are afraid they will find it difficult to sell,” said a Thailand-based source, adding the Thai field latex prices for the week dropped to THB 48-THB 49/kg ex-works.

According to Helixtap data, Thai raw material prices dropped around 3.5% over January. The situation is interesting as there were reports and signs of early wintering in Thailand, which usually tightens the supply in the market. In addition, the production level in Thailand is already under 50%, and the uncertainty makes the situation more complicated. 

“Market is disappointed post Chinese New Year due to the performance at SHFE and inactive Chinese demand. Thus prices dropped fast, even though wintering is just around the corner,” the Thailand-based source added. 

The situation was not different for Indonesian raw material prices, with some softness over the week primarily driven by lower demand. Meanwhile, in Africa, APROMAC too pegged the African raw material prices largely stable over the week, even though some of the smaller producers feel the levels are slightly higher than the set level.

Physical market sees limited activities 

The market activities remained limited, weighing on the prices. Moreover, some depreciation in the Chinese yuan against the US dollar further deterred the Chinese buying interest. While there were reports of some major Chinese tire companies in the market, they opted to buy domestically rather than overseas cargoes. 

The traded level for SIR 20 dropped to US$1410/mt on FOB basis, which was around US$1440/mt earlier in the week, while for STR 20 the traded level during the day was at around US$1455/mt on FOB basis. However, there was a slight uptick in the monthly average of Indonesian raw materials, which is likely to weigh on the margins. 

However, owing to the wide gap between Thai and other sources, namely Indonesia and Africa, the buyers will likely opt for SIR and AFR in the coming week.

Producers apprehensive ahead of the China return

The spot market rally paused during the day owing to apprehension amid producers ahead of China’s return next week, despite some support over the week due to some buying from the tire majors.

Amid some early wintering reports in Thailand and Africa too prepping for wintering, the producers paused to assess the market situation. While the active buying from the major tire makers was expected to return, given the lower volume booked for long term contracts, the situation is still uncertain.

This could be an excellent boost for the rubber prices, given the SHFE stockpiles are about 70% of the amount before the November drawdown when the market closed last week. In addition, a slew of data showcasing some strength in the U.S. economy and slowing inflation would also boost market confidence.

Wintering plays a key role; producers cautious   

An early wintering in Thailand could push the prices higher. “The latex price is still up like a rocket,” said a producer source. According to Helixtap market intelligence, the wintering in Thailand is also early this year and is expected to be longer.

“Trees are not healthy, and green leaves are falling fast too,” the producer source noted, adding the impact is predominant in southern Thailand, the key rubber-producing region.

In 2022, STR prices rose around 4% over January and February, while this year, over January, the prices have increased by almost 9% compared to December.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1505/mt FOB Bangkok/Laem Chabang, down US$ 10 from January 26, 2023. Helixtap Thai raw materials prices, however, rose to THB 42/kg ex-work, up THB 3, and Bulk latex at US$1200/mt, up US$155, over the week.

The situation is also similar for the African market, with some tightness in raw material supply. “Typical of January. Planters accumulate before stopping for wintering and deliver in one shot. Looks like a normal rhythm for now,” said a market source.

This has resulted in some drop in the excess raw material stocks with the processors, making them cautious about offering in the market. In addition, the fluctuation in the exchange levels has also been impacting the African producers, impacting their confidence.

Meanwhile, there were talks of some disparity in pricing for African raw materials domestically. However, the market sources noted that the trend had been there for the past two-three months.

Helixtap African Rubber (AFR) 10 at US$1450/mt CIF Rotterdam/Hamburg, down US$15 on January 27, 2023.

Source: Helixtap
 

Indonesian producers are jittery despite being the most economical

Even though the demand picture looks positive, Indonesian producers are cautious. In the current market scenario, Indonesian rubber is the most economical option in the market. The January average gap between the Indonesian and Thai rubber is at negative US$37, while the average gap in January 2022 was US$1/mt.

Source: Helixtap

Making the situation more difficult is that the Indonesia raw material prices uptick was steeper than Thai raw materials during the week. As a result, the Indonesian producers’ margins will be severely under pressure, given the scope for imports of low cost African raw material is limited.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1462.5/mt FOB Belawan/Surabaya, down US$12.5 on January 27, 2023. Helixtap Indonesian raw materials prices rose to IDR 19,500/kg ex-work, up IDR 1000 over the week.

China’s return awaited

While the Chinese market was closed for the week for the Lunar New Year holiday and will reopen on January 30, the market awaits the Chinese buying to return. There is an expectation that economic activities in China will pick up post the removal of its COVID-19 curbs.

The narrative around China is bullish. However, there are still some doubts about the real strength of consumer demand, and there is also a possibility of some inflationary pressure building up. While this is positive for rubber prices, it could push the market back to the vicious cycle of rate hikes and recessionary pressure. Helixtap TSR 20- CIF China prices remained unchanged at US$1480/mt CIF China over the week.

Producers’ margins under pressure on volatile demand and currency

Some Thai rubber producers were struggling with a cash crunch amid the current price and demand volatility. While the week closed at a higher-level owing to some last-minute restocking from China and the return of some tire majors, the market lacked confidence for a sustained recovery.

Thai producers struggling

Amid the uncertainties, some Thai producers were seen struggling with some cash crunch. While there is some drop in Thai production and a possibility of early wintering, the lack of demand has resulted in a decline in raw material prices. 

"Our factories just informed field latex supply is already decreasing. So we have to get cautious. But not much demand either," said a producer source.

"Don't think many (producers) are willing to sell if they don't get the price. But to be cautious, specifically for latex. Better to be…," the producer source added. While Chinese buying has been strong this week, it was primarily a part of some short covering. In addition, there is skepticism in the market around the recovery in demand in February.

The situation turned tricky due to the appreciation in the Thai Bhat against the US dollar, which limited the processors' buying capacity. As a result, some processors were cautious about buying raw materials due to limited liquidity. 

STR prices rose around 5% over the week, while raw material prices dropped 4%. This would have been a very beneficiary week for the producers, but the Thai Bhat appreciated to 32.84, the highest since March 2022 against the US dollar.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, unchanged from January 19, 2023. Helixtap Thai raw materials prices, however dropped to THB 39/kg ex-work, down THB 1, and Bulk latex at US$1045/mt, down 50, over the week.

Indonesian rubber failed to catch up

Even though the sentiment was not bearish, the appreciation in the Asian currency kept the Indonesian producers' margins under pressure. As a result, some producers who rely on the currency differential to book profits took a hit. "Indonesian producers cannot make it no matter high or low premium," the source said earlier this week.

Indonesian rubber continued to be the most economical option in the market, and return of some of the tire majors supported the prices. However, the rise in the SIR 20 was relatively muted during the week.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, unchanged from January 19, 2023. Helixtap Indonesian raw materials prices, however dropped to IDR 18,500/kg ex-work, down IDR 200, over the week.

According to Helixtap market intelligence, some tire majors were back in the market since last week but were buying in small quantities. However, this week there was a significant improvement in buying. There was some buying back from Europe. The US market has been sluggish for over a month. As a result, African producers were too looking into the Asian market and China.

Wintering to start in Africa in February

Low-cost African raw materials imports aided some of the larger Indonesian producers to adjust their prices. However, wintering is likely to start in Africa soon as well. According to market sources, the Ivory coast's raw material will likely slow down as it is past the peak production season. There has been some rise in the local raw material prices as local factories are fighting to stock up on material for wintering in the Ivory coast as well.

Helixtap African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, unchanged from January 19, 2023.

Boost in market activity heading into Lunar New Year festive season

Since the year began, market prices recorded two straight weeks of increase above the levels seen late last year. Amidst ongoing concerns on the spread of Covid-19 via the Chinese border reopening, prices were observed to move in an inconsistent directional pattern. The net move upwards reflects a bullish start to the year as Chinese buyers resumed restocking prior to the festive season.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1,360/mt FOB Belawan/Surabaya, up US$15/mt, Standard Thailand Rubber (STR) 20 at US$1,385/mt FOB Bangkok/Laem Chabang, up US$5/mt, and African Rubber (AFR) 10 at US$1,360/mt CIF Rotterdam/Hamburg, unchanged on January 13, 2023. Additionally, TSR20 Mixture CIF China was assessed at US$1,425/mt, up US$5/mt.

Market intelligence suggests offers for STR20 (March 2023) shipments are in a range from US$1,410/mt to US$1,420/mt. SIR20 (March 2023) shipments were traded in a range of about US$1,325/mt - US$1,335/mt at the start of the week to about US$1,355/mt to US$1,365/mt on 13 Jan 2023. 

In the rubber futures, prices for the first four positional contracts ranged from US$1,287/mt to US$1,343/mt in end-December. As of Thursday on 12 Jan 2023, the same prices recorded an increase and ranged from US$1,357/mt to US$1,398/mt. The difference represents an increase of US$54/mt to US$70/mt across the four positions, reflecting the price optimism seen in the physical rubber market. 

In the physical rubber market, assessed prices for physical rubber grades also increased since late last year. Compared to the assessments above, STR20 and SIR20 prices rose by US$37.5/mt and US$47.5/mt respectively. For AFR10 and TSR20 China Mixture prices, a US$27.5/mt and US$20/mt respective increase was recorded.

Helixtap assessed Indonesian Raw Materials at IDR18,700/kg, up 200 IDR/kg ,Thai Raw Materials at THB41/kg, down 1 THB/kg and Thai Latex at US$1,095/mt, up US$20/mt. 

Source: Customs Data, Helixtap

As major supply sources in Thailand head into the wintering season, an expected shortage in supply would likely have a positive impact on price floors. Every year, wintering in rubber trees causes supply levels to fall significantly. Just last year, the same phenomenon was observed in Thai Raw Material exports into China via the HS code 400129. Naturally, Helixtap price assessments for Thai Raw Materials showed an increase in average monthly price levels up till March 2022. Afterwards, prices fell below the levels observed in December 2021 toward the end of the wintering season. 

Post-CNY, wintering in Thailand and Africa are expected to result in tight supply. Depending on the strength of demand, sellers in alternative locations in Indonesia and Vietnam may be able to capitalise and offer into China. As of early January 2023, SHFE inventory deliverables in  warehouses stands at a relatively low level of around 187,000 tons. This amount is about 27% lower than the average weekly inventory level seen in the past 52 weeks. Historically, this value is also about 34% lower than the historical average of about 284,000 tons on a weekly basis. 

Seasonally, physical market prices for STR20 and SIR20 were also observed to increase over most Januarys. For SIR20, prices increased over January in the last 6 years from 2017 to 2022 while STR20 prices either increased or stayed at the same level. As warehouse supplies are relatively lower than on an average week, a resumption in Chinese demand post-CNY may help in price recovery as well. Chinese buyers would be likely to continue importing via the global rubber market due to lower-than-average domestic inventory levels after the festive season. 

Market directionless amid consistent bearish demand 

Helixtap Daily Physical Prices Assessment

• 
  Helixtap assessed SIR20 US$1390/mt FOB Belawan Surabaya, down US$10
• Helixtap assessed STR20 US$1440/mt FOB Bangkok Laem Chabang, down US$5
• Helixtap assessed AFR10 US$1380/mt CFR Hamburg Rotterdam, down US$10
• Helixtap implied AFR10 US$1340/mt FOB Abidjan, down US$10

Bearishness in demand amid the spot market treaded downwards. However, the market participants seem uncertain about the outlook. With the combination of lower demand and squeezed margins, the market could see some factories moving out of the rubber sector to other alternatives.

The market was banking on Chinese buying, which did return. However, over-inflated spot prices and some strength in the US dollar shifted their focus to domestic rubber. SHFE stock levels rose around 7% in January, indicating some demand in China, which was primarily catered by domestic traders. "If there is any China buying, it's only the stocks, so not really seen on the FOB market," said a producer source.

Meanwhile, limited interest for STR has weighed on the physical prices, with traders deeming Chinese buying slow. Offers for STR 20 Mixture at US$1480/mt on CIF basis garnered no interest. The situation was similar for African rubber, with some slowdown in buying from Europe and the US buying ahead of any announcement by the Federal Reserve, ECB, and BoE. The natural inclination was towards China. 

According to Helixtap market intelligence offer for AFR 10 at US$1360/mt on CIF basis saw no counter bids. Lack of demand has impacted the margins for small to mid-sized producers. In addition, the availability of raw materials is tightening due to wintering, which is nudging the local raw material prices higher. 

Indonesian prices, too, continued to slide during the day. The traded level for SIR 20 dropped to US$1390/mt on FOB basis for April shipments. The oversupply of raw materials for Indonesian rubber is worsening the situation. 

Producers optimistic of a revival as the market yet to see wintering impact

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1400/mt FOB Belawan Surabaya, steady 
• Helixtap assessed STR20 US$1445/mt FOB Bangkok Laem Chabang, steady
• Helixtap assessed AFR10 US$1390/mt CFR Hamburg Rotterdam, steady
• Helixtap implied AFR10 US$1350/mt FOB Abidjan, steady

Some producers are still optimistic about some rubber price revival despite the market's bearish trend, even though the spot prices treaded sideways amid limited buying interest during the day. 

Amid the talks of wintering and the shortage of raw materials in the market, the current situation looks slightly different from the market expectations. While Thai production has been below 50% and Africa, too, into early wintering, the raw material prices have been under pressure underlining the lack of demand in the market. 

Spot levels have seen correction over the past few days. Even though the market was largely stable during the day, the muted interest impacted the producers. According to Helixtap's market intelligence, ample Indonesian raw material is available in the market. This, coupled with the downcast demand, is likely to maintain the downward pressure on the prices. 

Indonesian producers, who have been seeing consistent negative margins since the beginning of 2022, might only be able to sustain lower prices a bit longer. Therefore, the situation might result in more close-downs over 2023. 

The traded level for SIR 20 was reported in the range of US$1400- US$1410/mt on FOB basis for April and May shipments. However, there were some higher offers for STR 20 in the market at US$1490/mt on FOB basis.

Some of the small-medium Thai suppliers are not in a very good position. As a result, there are still some "not workable" offers in the market. However, a Thailand-based source said, "Some RSS producers are finding it tough to make ends meet at present prices, so a lot of raw material is being diverted to the latex factories."

As an "initial panic reaction" to the talks of early wintering, the uptick in the prices was a bit unreasonable, and the market is resting itself at a more sustainable level. 

Meanwhile, some producers believe that the market is still at an early stage of wintering, and the impact will be more evident in a couple of weeks. "There is wintering effect. Early stage," said a producer source. 

While the tire demand from the advanced economies is likely to improve by Q2, the continued absence of Chinese buyers has impacted the sentiment the most. In addition, there is some caution in the market ahead of any new insight announcement around the trend of interest rates going forward by the Federal Reserve, ECB, and BoE. In addition, the appreciation of the US dollar against most currencies has also been weighing on the buying capacity.

Overbooking slows the spot market 

Helixtap Daily Physical Prices Assessment

• 
  Helixtap assessed SIR20 US$1400/mt FOB Belawan Surabaya, down US$ 10
• Helixtap assessed STR20 US$1445/mt FOB Bangkok Laem Chabang, down US$ 10
• Helixtap assessed AFR10 US$1390/mt CFR Hamburg Rotterdam, down US$ 7.5 
• Helixtap implied AFR10 US$1350/mt FOB Abidjan, down US$ 7.5

Some overbooking in the market weighed on the spot market prices as the buyers slowed down during the Asian trade day. As a result, the week saw a slow start with the price correction across the board. According to Helixtap's market intelligence, there were hardly any buyers in the market, barring the few major ones. 

"Only the two regular majors are in the market. The others slowed down again. So it seems they might still be overstocked," said another Singapore-based trader.

The traded level for SIR 20 dropped to US$1400/mt on FOB basis, while STR 20 saw a wide range of offers during the day ranging between US$1460- US$1490/mt on FOB basis. "US$1490/mt for STR, who is gonna pay?" said a Singapore-based source. 

With the reports of early wintering Thai raw material prices have lately been northbound. However, the producers had to lower their prices last week as there was hardly any buying interest. Moreover, there is a lot of uncertainty amid the producer of the demand situation in the coming weeks as there were reports of a widening bid-offer gap for domestic Chinese cargoes. This is indicative of an oversupplied market and slower than expected revival. 

China opening up its economy did bring in some boost for the market. However, for the relaxation to translate into real-term demand would take a couple of months. Thus, the real buying will likely return at the end of Q1 or early Q2. 

Meanwhile, the demand from Europe and US also remained limited. The buyers are booking but in smaller volumes. This buying is possibly the volume that was not booked under LTC. Thus, the physical volume booking done over and above the LTC seen in 2021 is still missing.

The summary from our predictive forecasting this week:

To see more and compare physical and futures spread, click here. Email any of our team members to understand our forecasting solution.
 

Correction in raw material prices weigh on spot 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1410/mt FOB Belawan Surabaya, up US$ 2.5
• Helixtap assessed STR20 US$1455/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1397.5/mt CFR Hamburg Rotterdam, down US$ 2.5 
• Helixtap implied AFR10 US$1357.5/mt FOB Abidjan, down US$ 2.5

Helixtap weekly Physical Prices Assessment

• Helixtap assessed SVR10 US$1380/mt FOB Ho chi minh, down US$ 45
• Helixtap assessed SMR20 US$1480/mt FOB Klang Penang, down US$ 30
• Helixtap assessed TSR 20 US$1460/mt CIF China, down US$ 20 

Helixtap weekly Raw Material Prices Assessment

• Helixtap assessed Indonesian raw material IDR 19,050/kg ex-works, down IDR 450
• Helixtap assessed Thai raw material THB 40.5/kg ex-works, down THB 1.5
• Helixtap assessed Bulk latex US$1150/mt FOB Bangkok Laem Chabang, down US$ 50

The spot market saw a bearish contrary to the expectation of some revival in the price, banking on the return of the Chinese demand and the early start of the wintering. However, the prices took a nosedive as Chinese buyers opted for the domestic market while raw material prices plunged. 

Drop in raw material prices across the board 

The raw material prices saw some correction during the week owing to bearish demand. According to Helixtap market intelligence, some processors/producers are not too keen to buy raw materials as they are unsure of the demand outlook for next week. “Latex producers are buying less as they are afraid they will find it difficult to sell,” said a Thailand-based source, adding the Thai field latex prices for the week dropped to THB 48-THB 49/kg ex-works.

According to Helixtap data, Thai raw material prices dropped around 3.5% over January. The situation is interesting as there were reports and signs of early wintering in Thailand, which usually tightens the supply in the market. In addition, the production level in Thailand is already under 50%, and the uncertainty makes the situation more complicated. 

“Market is disappointed post Chinese New Year due to the performance at SHFE and inactive Chinese demand. Thus prices dropped fast, even though wintering is just around the corner,” the Thailand-based source added. 

The situation was not different for Indonesian raw material prices, with some softness over the week primarily driven by lower demand. Meanwhile, in Africa, APROMAC too pegged the African raw material prices largely stable over the week, even though some of the smaller producers feel the levels are slightly higher than the set level.

Physical market sees limited activities 

The market activities remained limited, weighing on the prices. Moreover, some depreciation in the Chinese yuan against the US dollar further deterred the Chinese buying interest. While there were reports of some major Chinese tire companies in the market, they opted to buy domestically rather than overseas cargoes. 

The traded level for SIR 20 dropped to US$1410/mt on FOB basis, which was around US$1440/mt earlier in the week, while for STR 20 the traded level during the day was at around US$1455/mt on FOB basis. However, there was a slight uptick in the monthly average of Indonesian raw materials, which is likely to weigh on the margins. 

However, owing to the wide gap between Thai and other sources, namely Indonesia and Africa, the buyers will likely opt for SIR and AFR in the coming week.

Spot slide continues, some producers still optimistic 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1407.5/mt FOB Belawan Surabaya, down US$ 32.5
• Helixtap assessed STR20 US$1460/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1400/mt CFR Hamburg Rotterdam, down US$ 20 
• Helixtap implied AFR10 US$1360/mt FOB Abidjan, down US$ 20

The slide in the spot market continued during Asian trade day amid the lack of Chinese buying in the market, undermining a mellowed Fed rate hike. As a result, the producers struggled to match the market expectations with corrections all across the board, despite the upside in the Asian currencies against the US dollar. 

Indonesian prices join the crash

Indonesian rubber saw the steepest intraday drop as the buying slowed ahead of the rate hike announcements in Europe. While the Fed rate hike was in line with the market expectation lending some strength to the Indonesian Rupiah, the same did not translate into physical prices. 

With the drop in the traded level for SIR 20 in the range of US$1405-US$1420/mt on FOB basis for March to May shipments, the confidence in the market was low. However, some producers were still optimistic despite their downward adjustment in prices.

According to some market sources, though the sentiment is sluggish, the overall indicators are positive, as the raw material supply is likely to see some shortage due to winter. 

Moreover, there has been some uptick in Chinese buying, even though the Chinese buyers continued to prefer domestic cargoes, but the demand returned as expected, the sources said. In addition, some of the other big consumers are also back in the market. 

However, the continued volatility has heightened the apprehension among the market participants. "Quite a seesaw out there," said a Thailand-based source indicating the recent price weakness. The offered level for STR 20 dropped to US$1480-US$1490/mt on FOB basis, with limited buying interest.

Widening bid-offer gap in the Chinese domestic market 

While Chinese buyers have been active post the Lunar New Year holidays, the bid-offer gap for domestic rubber widened during the day. "Don't think anyone will sell at this level," said a market source. 

Meanwhile, the gap between Indonesian and Thai rubber also continued to widen. The gap between SIR 20 and STR 20 was at negative US$52.5/mt on 02 February, down from negative US$30/ on 03 January. The premium for SIR 20 over STR 20 has stayed reversed since September 2022 and is likely to continue until Thailand is out of the wintering.

China shifts focus to domestic market; producers struggle to match 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$140/mt FOB Belawan Surabaya, down US$ 7.5
• Helixtap assessed STR20 US$1465/mt FOB Bangkok Laem Chabang, down US$ 20
• Helixtap assessed AFR10 US$1420/mt CFR Hamburg Rotterdam, down US$ 10 
• Helixtap implied AFR10 US$1380/mt FOB Abidjan, down US$ 10

The spot market prices continued south during the day as the Chinese buying shifted to the warehouse. Meanwhile, the producers struggled to compete with the Chinese domestic levels withering off the gains seen over the past few weeks. 

China is active but domestically 

The Chinese market was active during the day. However, interest in international cargoes remained limited amid the price parity between overseas and warehouse cargoes. According to Helixtap market intelligence, some Chinese buyers are selling off their shfe positions and buying physical cargoes. "Chinese buyers are buying onshore material," said a Singapore-based source. 

There was some active buying from some of the tire majors during the day. However, owing to lower domestic prices, overseas buying interest remained limited. "Local (Chinese buyers) markets have been buying local tender shfe for the past few days since Chinese new year. So USD cargo is pretty weak, and premiums are dropping," said another Singapore-based source. 

The domestic rubber traded level was around RMB 11300 – RMB 11200 ex-warehouse. There is a gap of around US$30 between the STR mixture offers and domestic prices, explaining the lack of interest in the overseas physical market. However, the current buyout would lead to some drop in the SHFE stock level, which might bring Chinese buyers back into the overseas market later in the quarter.

However, African rubber could make some inroads into the Chinese market as the traded level for AFR 10 was reported at US$1415/mt CIF China. 

Meanwhile, the current situation has dented the market's confidence. Even though the Thai producers tried to adjust their offers despite higher raw material prices, they are yet to match up with the domestic levels. The situation could lead to more downside in the prices for the rest of the week. 

Indonesian producers somewhat insulated  

The Indonesian rubber prices saw some drop. However, the correction was marginal compared to other sources owing to its limited exposure to the Chinese market. There was still some buying interest for Indonesian rubber during the day. The traded level for SIR 20 dropped to US$1440-US$1445/mt on FOB basis.

Weak macro-economic indicators 

Meanwhile, weakness in the Asian macro-economic indicators added to the market's pessimism. According to industry reports, China's factory activity contracted in January despite the reopening. There is a lot of uncertainty owing to the slowing global demand and weakness in the European and the US market.

Producers resistant, buyers cautious, spot mixed 

Helixtap Daily Physical Prices Assessment
 

• Helixtap assessed SIR20 US$1447.5/mt FOB Belawan Surabaya, up US$ 5
• Helixtap assessed STR20 US$1485/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1430/mt CFR Hamburg Rotterdam, steady 
• Helixtap implied  AFR10 US$1390/mt FOB Abidjan, steady 

The spot market was mixed during the day owing to resistance amid the producers, given the rise in raw material prices, while the buyers were cautious ahead of top-tier data. In addition, despite China signaling positive growth, the buyers opted to buy domestically, further weighing on the market sentiments. 

Producers held on offers citing higher raw material prices

The rubber producers across the board were unwilling to lower their offers amid some uptick and raw material prices and wintering in most rubber-producing regions. “We are holding our prices. Indo raw material stable, but we are heading into wintering,” said an Indonesia-based source. 

With the reports of wintering in Thailand, Vietnam, parts of Indonesia, and Africa, the producers expect the supply to tighten in the coming weeks. However, according to Helixtap market intelligence, there are still ample stocks in the market to cater to the demand, which is deferring a steep spike in the prices. 

While the offer level for STR 20 continued in the range of US$1490-US$1500/mt FOB Bangkok/Laem Chabang for February to May shipments, the traded level for SIR 20 was marginally up at US$1445- US$1450/mt FOB Belawan/Surabaya for March and April shipments.

Despite some downward bias in the futures market, the producers are confident the physical prices are unlikely to take a massive hit as there is still some buying from the tire majors in the market. 

China prefers domestic stocks over exports

Meanwhile, China continued to be less active in the physical market as they opted to buy from the warehouse. Even though there was a marginal depreciation in Yuan against the US dollar, it was not big enough to impact the buying. 

The resistance amid the producers to adjust the prices shifted the Chinese buying to the warehouse. “There are pockets of buying from China. But the problem is onshore material is relatively cheap,” said a Singapore-based source. The offered level for STR 20 Mixture was at US$1500/mt CIF China May shipments, while the buying interest was at US$1490/mt on CIF basis.

There has been some rise in the stock level post the draw drop in November 2022. However, it is relatively lower than the average. “But as a function of consumption (stocks), the days are higher,” noted a producer source. According to Helixtap market intelligence, some big Chinese traders are trying to take tenders from SHFE. 

Caution on owing to macro-indicators

The buyers, however, remained cautious during the day ahead of the rate hike announcements from the US and Europe. Moreover, despite some upbeat PMI data from China and IMF raising its global growth estimates, there is still some fear of inflation in the market, which has unmined its positives. Furthermore, the expectation of a hawkish stance from the Bank of Japan made the market skeptical.

Oversupplied market despite wintering scare; spot slides 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1442.5/mt FOB Belawan Surabaya, down US$ 20
• Helixtap assessed STR20 US$1490/mt FOB Bangkok Laem Chabang, down US$ 15
• Helixtap assessed AFR10 US$1430/mt CFR Hamburg Rotterdam down US$ 20
• Helixtap implied  AFR10 US$1390/mt FOB Abidjan, down US$ 20

The spot market was southbound during the day against the expectations of some support post-China’s return due to some oversupply in the market. In addition, there was some caution amid the buyers ahead of the rate hike announcements due this week.

While the talks of wintering made rounds in the market, the supply is yet to see the impact. According to Helixtap market intelligence, there are offers for Thai rubber for February, weighing on the pricing sentiment. 

Offers for STR 20 hovered in the range of US$1490-US$1510/mt for February and March shipments, while the reported traded level was at US$1490/mt FOB Bangkok/Laem Chabang. “Thais are talking about early wintering,” said a Thailand-based source.

There were reports of wintering in Vietnam as a producer source noted that it is wintering in Vietnam, and there is no production. The offers in the market were mainly from the existing stock. Thus, the prices might be under pressure until these stocks last. 

China’s return is slower than expected 

Meanwhile, the rebound expected post the return of the Chinese buyers in the market was missing during the day, which impacted the market confidence. While the general expectation was a sideways movement in the prices, the market did not expect a slide during the day. 

It is interesting as the Asian currency saw some appreciation against the US dollar, which ideally should have triggered some buying from China. However, it is just the beginning of the week. The Chinese buyers are possibly holding back to assess the market level or look for opportunistic buying as the stockpile is about 50% of the average.

Other buyers are awaiting direction from Fed

There was an overall caution amid the buyers ahead of the announcement of the rate hikes by the Fed due this week. The general expectation is that the Fed will raise rates by 25 basis points, followed by half-point hikes from the Bank of England and European Central Bank. Any deviation from the expectation might derail the buying momentum and rebound in the rubber prices over the past few weeks.

Even though Indonesian rubber saw some interest from international buyers, the traded level dropped during the day. The situation is critical for the producers as elevated raw material prices and appreciation in Asian currencies have failed to support the prices. Traded level for SIR 20 was reported in the range of US$1440-US$1445/mt for March and April shipments.

The summary from our predictive forecasting this week:

To see more and compare physical and futures spread, click here. Email any of our team members to understand our forecasting solution.

Helixtap would like to issue a correction for Helixtap Indonesian raw material assessment -- IDR 18,700/kg and Helixtap Thai latex assessment – US$1105/mt published on January 27, 2023. 

Corrected assessment – 

• Indonesian raw material -- IDR 19,500/kg ex-works; up IDR 1000
• Thai latex – US$ 1200/mt; up US$155

Producers apprehensive ahead of the China return

The spot market rally paused during the day owing to apprehension amid producers ahead of China’s return next week, despite some support over the week due to some buying from the tire majors.

Amid some early wintering reports in Thailand and Africa too prepping for wintering, the producers paused to assess the market situation. While the active buying from the major tire makers was expected to return, given the lower volume booked for long term contracts, the situation is still uncertain.

This could be an excellent boost for the rubber prices, given the SHFE stockpiles are about 70% of the amount before the November drawdown when the market closed last week. In addition, a slew of data showcasing some strength in the U.S. economy and slowing inflation would also boost market confidence.

Wintering plays a key role; producers cautious   

An early wintering in Thailand could push the prices higher. “The latex price is still up like a rocket,” said a producer source. According to Helixtap market intelligence, the wintering in Thailand is also early this year and is expected to be longer.

“Trees are not healthy, and green leaves are falling fast too,” the producer source noted, adding the impact is predominant in southern Thailand, the key rubber-producing region.

In 2022, STR prices rose around 4% over January and February, while this year, over January, the prices have increased by almost 9% compared to December.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1505/mt FOB Bangkok/Laem Chabang, down US$ 10 from January 26, 2023. Helixtap Thai raw materials prices, however, rose to THB 42/kg ex-work, up THB 3, and Bulk latex at US$1200/mt, up US$155, over the week.

The situation is also similar for the African market, with some tightness in raw material supply. “Typical of January. Planters accumulate before stopping for wintering and deliver in one shot. Looks like a normal rhythm for now,” said a market source.

This has resulted in some drop in the excess raw material stocks with the processors, making them cautious about offering in the market. In addition, the fluctuation in the exchange levels has also been impacting the African producers, impacting their confidence.

Meanwhile, there were talks of some disparity in pricing for African raw materials domestically. However, the market sources noted that the trend had been there for the past two-three months.

Helixtap African Rubber (AFR) 10 at US$1450/mt CIF Rotterdam/Hamburg, down US$15 on January 27, 2023.

Source: Helixtap
 

Indonesian producers are jittery despite being the most economical

Even though the demand picture looks positive, Indonesian producers are cautious. In the current market scenario, Indonesian rubber is the most economical option in the market. The January average gap between the Indonesian and Thai rubber is at negative US$37, while the average gap in January 2022 was US$1/mt.

Source: Helixtap

Making the situation more difficult is that the Indonesia raw material prices uptick was steeper than Thai raw materials during the week. As a result, the Indonesian producers’ margins will be severely under pressure, given the scope for imports of low cost African raw material is limited.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1462.5/mt FOB Belawan/Surabaya, down US$12.5 on January 27, 2023. Helixtap Indonesian raw materials prices rose to IDR 19,500/kg ex-work, up IDR 1000 over the week.

China’s return awaited

While the Chinese market was closed for the week for the Lunar New Year holiday and will reopen on January 30, the market awaits the Chinese buying to return. There is an expectation that economic activities in China will pick up post the removal of its COVID-19 curbs.

The narrative around China is bullish. However, there are still some doubts about the real strength of consumer demand, and there is also a possibility of some inflationary pressure building up. While this is positive for rubber prices, it could push the market back to the vicious cycle of rate hikes and recessionary pressure. Helixtap TSR 20- CIF China prices remained unchanged at US$1480/mt CIF China over the week.

Positive Sentiment in the absence of China across all grades show return of international consumer spot interest

(26 Jan) 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 1,475 USD/MT FOB Belawan Surabaya
• Helixtap assessed STR20 1,515 USD/MT FOB Bangkok Laem Chabang
• Helixtap assessed AFR10 1,465 USD/MT CFR Hamburg Rotterdam
• Helixtap implied  AFR10 1,430 USD/MT FOB Abidjan

Major Consumer shows continued March interest, keeping spot prices strong

Indonesian cargoes traded large volumes today, with a European tyre major back in full force and looking for March cargoes. Prices traded were between 1,465 - 1,480 FOB Belawan Surabaya for March. 

Thai sellers were offering at a higher level, but due to cheaper Indonesian cargoes and the absence of China, traded much lower volumes. Sellers were holding on to their offers, but were willing to trade at a discount, i.e. 1,500 USD/MT as many prompt cargoes (Feb loading) were still available.

Helixtap has reported the presence of major consumer interest in March loading since the start of this year, with the most recent update on 17th Jan 2023.

Trade flow to the USA has picked up a little, compared to the previous month, and we note prices on an FOB basis are around 1,430 USD/MT FOB Abidjan. Some African producers Helixtap spoke to said, “Demand in the US and EU has been slower than usual, but we are anticipating more interest for March and April shipments”. This is in line with Helixtap’s market intelligence on early wintering in Africa.

Thai Raw Materials Weekly Assessment dips below Indonesian 

Thai cup lump prices crossed 40 THB today, with the average being 41- 42 THB/Kg. This represents a +3 THB/Kg level from last week. This week, whilst both Indonesian and Thai processors experienced an increase in raw material levels, it could signal more competitive Thai cargoes in the coming week when China reopens. Many are expecting early wintering, but looking at Helixtap’s data from last year, Indonesian raw material was 43 USD/MT higher than Thai raw material, and the widest differential between Indonesian and Thai raw materials was above +350 USD/MT during the wintering period.

Image 1: Raw Material Prices Oct 2021 - Date

How will China react next week?

With prices being supported this week, China’s return is expected to continue this bullish trend. A producer source Helixtap spoke to said, “Prices have been trending upwards even without Chinese buying this week, it seems the market is expecting that to continue this when China reopens next week.”

Looking at inventory data from SHFE just before the Lunar New Year, stockpiles are about 70% the amount before the November drawdown. This indicates further possibility of spot interest and buying next week.

Image 2: SHFE Deliverable Analysis
 

Quiet market moves upwards, whilst awaiting China’s return

(25 Jan) 

• Helixtap assessed SIR20 1,465 USD/MT FOB Belawan Surabaya
• Helixtap assessed STR20 1,495 USD/MT FOB Bangkok Laem Chabang
• Helixtap assessed AFR10 1,430 USD/MT CFR Hamburg Rotterdam

With China away from the market this week and other parts of Asia having a short week, there was muted activity and volume traded today.

Many Indonesian processors tried offering at 1,480 USD/MT for April FOB Belawan Surabaya, but lamented “there is only one buyer in the market today for SIR20 and they are bidding too low”. Sources Helixtap spoke to noted bids of USD/MT 1,450 - 1,460 FOB Belawan Surabaya for March / April loading.

Comparatively, Thai producers managed to sell some volume at USD/MT 1,500 FOB Bangkok Laem Chabang for April cargoes. However, February prompt loading cargoes were still available. This probably indicates that buyers have filled their positions for February and the contango should be higher between February and March and April where sellers are seen to be more cautious. Some Thai sellers were seen at USD/MT 1,530 for April cargoes too. 

Raw Material Spikes & Currency Moves Lead the Way

Producing countries' currencies continued to remain strong against the USD, which impacted producers margins negatively. Indonesian raw material spiked to above 19,000 IDR/Kg whilst field latex in Thailand went above 50 THB/Kg today. 

Indonesian Rupiah went below 15,000 against USD whilst Thai Baht remained under 33 against USD. 

For Thai processors, they now have some margin, and we should expect sellers to try to lock in more sales at 1,500 USD/MT levels. However, that may have to resume once China is back next week. 

For Indonesian processors, they too have some margin (though now just about par) at the 1,460 - 1,470 USD/MT levels. If the Indonesian suppliers continue to remain competitive, this may keep a lid on the Thai processors. 

African sellers and Latex sellers exhibit caution

African processors have noted more leaf fall, earlier than previous year and are exhibiting some caution in offering. This has continued for close to a month, and has reduced any previous excess raw material that processors have stockpiled. Furthermore, some suppliers have noted “Currency not only affects the Asian sellers - our stronger Euro against the USD means raw material for us is also more expensive”. Today, most African sellers chose to sideline or offer cautiously. 

Thai raw materials were seen to increase about 5 THB/Kg from just before the Lunar New Year holidays. 

Producers’ margins under pressure on volatile demand and currency

Some Thai rubber producers were struggling with a cash crunch amid the current price and demand volatility. While the week closed at a higher-level owing to some last-minute restocking from China and the return of some tire majors, the market lacked confidence for a sustained recovery.

Thai producers struggling

Amid the uncertainties, some Thai producers were seen struggling with some cash crunch. While there is some drop in Thai production and a possibility of early wintering, the lack of demand has resulted in a decline in raw material prices. 

"Our factories just informed field latex supply is already decreasing. So we have to get cautious. But not much demand either," said a producer source.

"Don't think many (producers) are willing to sell if they don't get the price. But to be cautious, specifically for latex. Better to be…," the producer source added. While Chinese buying has been strong this week, it was primarily a part of some short covering. In addition, there is skepticism in the market around the recovery in demand in February.

The situation turned tricky due to the appreciation in the Thai Bhat against the US dollar, which limited the processors' buying capacity. As a result, some processors were cautious about buying raw materials due to limited liquidity. 

STR prices rose around 5% over the week, while raw material prices dropped 4%. This would have been a very beneficiary week for the producers, but the Thai Bhat appreciated to 32.84, the highest since March 2022 against the US dollar.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, unchanged from January 19, 2023. Helixtap Thai raw materials prices, however dropped to THB 39/kg ex-work, down THB 1, and Bulk latex at US$1045/mt, down 50, over the week.

Indonesian rubber failed to catch up

Even though the sentiment was not bearish, the appreciation in the Asian currency kept the Indonesian producers' margins under pressure. As a result, some producers who rely on the currency differential to book profits took a hit. "Indonesian producers cannot make it no matter high or low premium," the source said earlier this week.

Indonesian rubber continued to be the most economical option in the market, and return of some of the tire majors supported the prices. However, the rise in the SIR 20 was relatively muted during the week.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, unchanged from January 19, 2023. Helixtap Indonesian raw materials prices, however dropped to IDR 18,500/kg ex-work, down IDR 200, over the week.

According to Helixtap market intelligence, some tire majors were back in the market since last week but were buying in small quantities. However, this week there was a significant improvement in buying. There was some buying back from Europe. The US market has been sluggish for over a month. As a result, African producers were too looking into the Asian market and China.

Wintering to start in Africa in February

Low-cost African raw materials imports aided some of the larger Indonesian producers to adjust their prices. However, wintering is likely to start in Africa soon as well. According to market sources, the Ivory coast's raw material will likely slow down as it is past the peak production season. There has been some rise in the local raw material prices as local factories are fighting to stock up on material for wintering in the Ivory coast as well.

Helixtap African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, unchanged from January 19, 2023.

Holiday mood seeps into spot market; Thai producers facing liquidity issues

The spot market slowed during the day before the Lunar New Year holidays as most buyers were away from the market. Meanwhile, amid the price volatility and muted demand, some Thai producers are dealing with a cash crunch.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, and African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, all down US$10 on January 19, 2023.

Market activities muted

Market activities remained muted, with most Chinese buyers away ahead of the Lunar New Year holidays. Some of the international buyers took a step back to assess the market situation. According to Helixtap market intelligence, there were some Japanese buyers buying Indonesian rubber; otherwise, the market was largely quiet. “(The market) Super quiet. Most Chinese traders are already on holiday,” said a Singapore-based source.

While the producers adjusted their offer to allure buying, there was limited interest for Thai rubber. The offer level for STR 20 was around US$1480/mt FOB Bangkok/Laem Chabang for March shipments, and for STR 20 Mixture was around US$1500/mt on CIF basis.

There is a lot of skepticism around the return of buying from China post the holidays. Even though some believe the demand is expected to pick up, given the lower inventory level, inflation however, could be a big deterrent.

While the traded level for SIR 20 dropped to US$1410- US$1425/mt FOB Belawan/Surabaya for March and April shipments, some producers opted to stay out of the market.

Some positive from US data, no impact on spot

While there were some signs of improvement in global economic health with a drop in the US price of wholesale goods and services for December, in addition, the annual rate of inflation in UK also dropped to 10.5% in December. This, however, failed to prop up the market sentiment.

The market participants expect improved buying from Europe and the U.S.US by the end of the first quarter or early second quarter. However, with rising covid cases in China, the possibility of another wave in 2023 cannot be ruled out.

Cautiously optimistic buying stalls the rally in spot prices  

Cautiously optimistic buying during the Asian trade day kept the prices northbount but capped the price rally. While the producers tried to push the prices up on an optimistic outlook, the international buyers held back, widening the bid-offer gap

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1425/mt FOB Belawan/Surabaya, up US$25, Standard Thailand Rubber (STR) 20 at US$1470/mt FOB Bangkok/Laem Chabang, up US$10, and African Rubber (AFR) 10 at US$1425/mt CIF Rotterdam/Hamburg, up US$5 on January 18, 2023.

The buyers unwilling to match the offers

While the optimistic outlook on Chinese demand has supported the physical rubber prices, there was some resistance from the buyers. According to Helixtap market intelligence, international buyers are not too keen on the existing levels as they still feel that the market is oversupplied.

The tire makers' buying has picked up since last week, but the volume has been limited. "Buyers still not what one might call abundant," said a producer source. However, given the reports of possible early wintering in Thailand coupled with Thai rubber might be some supply tightness in the coming weeks. The offered level for STR 20 was around US$1480- US$1490/mt FOB Bangkok/Laem Chabang for February and March shipments during the day.

Indonesian rubber, on the other hand, saw some widening of the bid-offer gap owing to limited bargaining power. While the traded level for SIR 20 increased to US$1420- US$1430/mt FOB Belawan/Surabaya, the offers were around US$1440- US$1465/mt on FOB basis. "Buyers are cautious about chasing too high," said a Singapore-based source.

Europe and US yet to catch up 

While the European market is slowly catching up, it is yet to see real active buying especially given the lower volume in LTC for 2023. Moreover, car sales in most European markets have seen negative growth in 2022, baring Germany. However, the market is likely to pick up with an easing supply chain situation and improved availability of semiconductor chips. The optimism was seen in the African prices, and the offers for AFR 10 were around US$1425-US$1445/mt on CIF Eu main ports basis.

Meanwhile, the US market has been sluggish for the past couple of months amid the inflationary pressure and Fed rate hikes.

Spot rallied on upbeat tire makers outlook & China restocking

Spot market rallied during the Asian trade day with the return of some of the major tire makers and some last moment restocking from China, driven by some positive global cues. However, while the producers tried to book profits, there was some caution amid the market.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1405/mt FOB Belawan/Surabaya, up US$35, Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, up US$65, and African Rubber (AFR) 10 at US$1420/mt CIF Rotterdam/Hamburg, up US$50 on January 17, 2023.

Lower LTC volume brings tire makers back

The return of some of the major tire makers in the market boosted the market confidence during the day. Even though some major tire guys have been back in the market since last week, the lo wer volume booking failed to prop the market.

However, according to Helixtap market intelligence, a few more joined the buying spree during the day, supporting the physical market. Earlier than expected return of the buyers in the market could be owing to lower term contract volume booking coupled with some improvement in the tire makers’ outlook for 2023.

The traded level for STR 20 was around US$1470/mt FOB Bangkok/Laem Chabang for March shipments, while the traded level for SIR 20 was at US$1400/mt FOB Belawan/Surabaya. However, the gap between the Thai and Indonesian rubber continued to widen despite the jump in the market.

“Tyre majors are back in the market since last week but were buying in small quantities. But a significant development (today), said a producer source. While there was some buying back from Europe, the US market has been sluggish for over a month. As a result, most producers were looking into the Asian market and China.

Last moment restocking in China, sentiment supported by strong car sales data

Some active buying was seen from China during the day, especially after positive car sales data and better-than-expected GDP data. Vehicle sales in China saw a 2.1% increase in 2022 compared to 2021 levels, according to the China Association of Automobile Manufacturers (CAAM).

With the relaxation in the Covid restrictions and a huge drop in the inventory level at the end of November, the Chinese tire makers were upbeat about 2023. According to Helixtap market intelligence, the traded level for the STR 20 mixture shot to US$1480-US$1490/mt level on CIF basis, while for AFR 10, it was at US$1410/mt on CIF basis.

While some believed the current spurt is more of a short covering before the Chinese New Year, others feel the uptick could continue to post the holidays. There is still some caution in the market, given the matured markets are yet to catch up. However, given the easing supply chain disruptions and improved availability of semiconductors chips, the market is likely to be positive for the week.  

Appreciation in currency supports spot, demand sluggish 

The spot market found some support during the Asian trade day, driven by the appreciation in Asian currencies despite limited demand. China is also slowing down ahead of the Lunar new year.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1370/mt FOB Belawan/Surabaya, Standard Thailand Rubber (STR) 20 at US$1395/mt FOB Bangkok/Laem Chabang, and African Rubber (AFR) 10 at US$1370/mt CIF Rotterdam/Hamburg, all up US$10 on January 16, 2023.

Appreciation in currencies squeezes margins

The spot prices found support owing to the appreciation in the Asian currencies against the US dollar. While this is a positive for the market, the situation is getting grimmer for the producers amid rising raw material prices and slowing demand.

“Sentiments not bearish, at least. Currency moves are supportive for sicom,” said a Singapore-based source. Even though the sentiment was not bearish, the margins are under pressure. Some producers who rely on the currency differential to book profits would be taking the hit. “Indonesian producers cannot make it no matter high or low premium,” the source added.
 

While the raw materials have been northbound, the producers are walking a thin line between balancing cost and matching the market expectations. The offers for STR 20 were at around US$1420- US$1430/mt FOB Bangkok/Laem Chabang for February and March shipments, while the traded level for SIR 20 was at US$1370/mt FOB Belawan/Surabaya.

The broadly positive cues from global markets owing to positive US consumer price inflation and consumer sentiment data raised hopes of the Fed slowing its pace of rate-hike coming months. However, it failed to stir more buying in the market, clearly cautious about Chinese demand post-Chinese New Year.

China slowed ahead of the holidays

The Chinese buying slowed down this week as most buyers are already away for holidays, indicating a less active week. “Some buyers are already on CNY holiday. Have yet to see any interest from the international side. No bidding yet,” said another Singapore-based source.
 

The summary from our predictive forecasting this week:
 

To see more and compare physical and futures spread, click here. Email any of our team members to understand our forecasting solution.

Boost in market activity heading into Lunar New Year festive season

Since the year began, market prices recorded two straight weeks of increase above the levels seen late last year. Amidst ongoing concerns on the spread of Covid-19 via the Chinese border reopening, prices were observed to move in an inconsistent directional pattern. The net move upwards reflects a bullish start to the year as Chinese buyers resumed restocking prior to the festive season.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1,360/mt FOB Belawan/Surabaya, up US$15/mt, Standard Thailand Rubber (STR) 20 at US$1,385/mt FOB Bangkok/Laem Chabang, up US$5/mt, and African Rubber (AFR) 10 at US$1,360/mt CIF Rotterdam/Hamburg, unchanged on January 13, 2023. Additionally, TSR20 Mixture CIF China was assessed at US$1,425/mt, up US$5/mt.

Market intelligence suggests offers for STR20 (March 2023) shipments are in a range from US$1,410/mt to US$1,420/mt. SIR20 (March 2023) shipments were traded in a range of about US$1,325/mt - US$1,335/mt at the start of the week to about US$1,355/mt to US$1,365/mt on 13 Jan 2023. 

In the rubber futures, prices for the first four positional contracts ranged from US$1,287/mt to US$1,343/mt in end-December. As of Thursday on 12 Jan 2023, the same prices recorded an increase and ranged from US$1,357/mt to US$1,398/mt. The difference represents an increase of US$54/mt to US$70/mt across the four positions, reflecting the price optimism seen in the physical rubber market. 

In the physical rubber market, assessed prices for physical rubber grades also increased since late last year. Compared to the assessments above, STR20 and SIR20 prices rose by US$37.5/mt and US$47.5/mt respectively. For AFR10 and TSR20 China Mixture prices, a US$27.5/mt and US$20/mt respective increase was recorded.

Helixtap assessed Indonesian Raw Materials at IDR18,700/kg, up 200 IDR/kg ,Thai Raw Materials at THB41/kg, down 1 THB/kg and Thai Latex at US$1,095/mt, up US$20/mt. 

Source: Customs Data, Helixtap

As major supply sources in Thailand head into the wintering season, an expected shortage in supply would likely have a positive impact on price floors. Every year, wintering in rubber trees causes supply levels to fall significantly. Just last year, the same phenomenon was observed in Thai Raw Material exports into China via the HS code 400129. Naturally, Helixtap price assessments for Thai Raw Materials showed an increase in average monthly price levels up till March 2022. Afterwards, prices fell below the levels observed in December 2021 toward the end of the wintering season. 

Post-CNY, wintering in Thailand and Africa are expected to result in tight supply. Depending on the strength of demand, sellers in alternative locations in Indonesia and Vietnam may be able to capitalise and offer into China. As of early January 2023, SHFE inventory deliverables in  warehouses stands at a relatively low level of around 187,000 tons. This amount is about 27% lower than the average weekly inventory level seen in the past 52 weeks. Historically, this value is also about 34% lower than the historical average of about 284,000 tons on a weekly basis. 

Seasonally, physical market prices for STR20 and SIR20 were also observed to increase over most Januarys. For SIR20, prices increased over January in the last 6 years from 2017 to 2022 while STR20 prices either increased or stayed at the same level. As warehouse supplies are relatively lower than on an average week, a resumption in Chinese demand post-CNY may help in price recovery as well. Chinese buyers would be likely to continue importing via the global rubber market due to lower-than-average domestic inventory levels after the festive season. 

Market loses steam amid limited activities

The spot market slowed as the buying mellowed ahead of the Chinese new year, pushing the prices slightly down despite the strength in the regional currencies.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1345/mt FOB Belawan/Surabaya, down US$5, Standard Thailand Rubber (STR) 20 at US$1380/mt FOB Bangkok/Laem Chabang, down US$5, and African Rubber (AFR) 10 at US$1360/mt CIF Rotterdam/Hamburg, down US$10 on January 10, 2023.

While the market is still uncertain about the post-Chinese new year recovery, the current seasonal lull is expected. Meanwhile, the raw material prices, especially in Thailand, are high owing to some shortages and the possibility of early wintering. The producers were finding it difficult to book profit at these levels. The offers for STR 20 were at around US$1410- US$1420/mt FOB Bangkok/Laem Chabang for February and March shipments.

Meanwhile, some Indonesian producers who had been banking on low-cost raw material imports from Africa are likely to witness some setbacks as Africa would too start wintering in February. So, according to Helixtap market intelligence, some of the African producers would start restocking before wintering, possibly pushing the African raw material prices up.

The demand for Indonesian rubber has slowed down over the past year due to the higher cost. However, despite being the lowest denominator in the market, it has failed to make inroads into China or other markets.

In addition, lower volumes booked for long-term contact are likely to add to the pressure. Finally, some producers expect a return of some of the big European buyers by the end of the first quarter might push the market sentiment up. However, given the overall bearish cues from demand, the outlook looks uncertain. 

Optimism in the market, producers see better market activities

Spot rubber market was active during the Asian trade day with some uptick in the prices supported by some Chinese restocking and strength in the Asian currencies against the US dollar ahead of the US inflation data release.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1350/mt FOB Belawan/Surabaya, up US$15, Standard Thailand Rubber (STR) 20 at US$1385/mt FOB Bangkok/Laem Chabang, up US$15, and African Rubber (AFR) 10 at US$1370/mt CIF Rotterdam/Hamburg, up US$10 on January 11, 2023.

Optimism on Chinese restocking and currency support

There was some active buying in the market during the day with continued interest from China, who are restocking. However, the market is still jittery about the post-Chinese New Year demand as several tire makers are likely to reduce their production during the holidays from the boosted levels at the moment.

The optimism was, however, further supported by the strength in the Asian currencies against the US dollar. Indonesia's rupiah saw the highest day-on-day jump amid other Asian currencies. As a result, the traded level SIR 20 increased to US$1350/mt FOB Belawan/Surabaya for March shipments.

According to market sources, the positive sentiment around Asian currencies and China's borders reopening has kept the market confidence up. While the offers for STR 20 were at around US$1420/mt FOB Bangkok/Laem Chabang for February to April shipment, some higher offers were also reported at US$1460/mt.

With some possibility of early wintering in Thailand like last year, the Thai rubber, despite losing its competitive edge in the market, saw an uptick. As a result, there was some buying interest for the STR 20 mixture at around US$1460/mt on CIF basis for May/June shipment. However, if the uptick in Thai rubber prices continues with China holding on to its reopening post-Chinese New Year, China might move to other alternatives like Indonesian, Vietnamese or African rubber.

Macro factors that might impact

While the demand from Europe and the US is still subdued, a lot would ride on the upcoming US inflation data, which would decide the course of the rate hikes from the Fed. While the general market expectation is the hike is likely to slow down this year, A downgrade in the growth outlook by the world bank has wavered the market confidence.

For the US economy, the world bank dropped its growth forecast to 0.5% from 2.4%, and a similar downgrading was seen for China and Japan, which are the key rubber consumers.
Even though China has reopened, a faster-than-expected move has posed a question on the sustainability of the uptick in the market amid the rising cases in the country.

Volatility continues; Widening Indo-Thai firm gap could open arbitrage into China

Volatility in the spot market continued with some Chinese buying back. With higher raw material prices, Thai rubber continued its uptick while the widening gap between Indonesian and Thai rubber, some Indonesian rubber, is possibly making its way into China. 

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1335/mt FOB Belawan/Surabaya, up US$7.5, Standard Thailand Rubber (STR) 20 at US$1370/mt FOB Bangkok/Laem Chabang, and African Rubber (AFR) 10 at US$1360/mt CIF Rotterdam/Hamburg, both up US$5 on January 10, 2023.

Possible arbitrage for Indo rubber into China

The widening gap between Indonesian and Thai rubber could have opened the arbitrage into China, especially ahead of the Lunar New Year holidays. Even though China does not traditionally import Indonesian rubber, in September 2022, there was an uptick in Indonesian rubber exports to China. 

Source: Helixtap & Customs data

The gap between Indonesian and Thai rubber continued to widen and is currently at around negative US$35/mt, down from US$35 on January 03, 2022. The spread has been consistently in the negative territory since mid-September after reaching as high as US$125/mt in May 2022.

While in September 2022, producers with some presence in Singapore had the arbitrage factor working for them as the freight is relatively less from Singapore to China than from Indonesia to China. The situation is very similar in the current market situation as well.

Source: Helixtap 

Meanwhile, African sellers have also been selling very competitively into China as most consumers needed to lock in more volume on LTC, and many producers expect a demand increase in March.

There was some buying interest from China during the day as the STR 20 mixture was reportedly traded at US$1430/mt on CIF basis, while the traded level for AFR 10 was at US$1345/mt on CIF basis.

Support for Indo for being the lowest cost denominator 

Indonesian rubber found some support amid buying from the major tire makers during the day. During the day, the traded level SIR 20 hovered between US$1335- US$1360/mt FOB Belawan/Surabaya for March and April shipments. "Indo spot price is so low, there are no favorable to support STR spot price," said a Thailand-based source.

Thai producers struggling

While on the one hand, appreciation in Thai Bhat has been nudging the prices up, the raw materials, on the other hand, remained short in supply. Moreover, there are reports of increased rainfalls in the region, possibly tightening the supply further. "Rain is about to come and hit us again, and the supply is less than last year," said a producer source. In addition, some producers might be seen struggling with cash flow given the market's limited support and China soon-to-close on account of the Lunar New year holidays.

Correction in raw material prices weigh on spot 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1410/mt FOB Belawan Surabaya, up US$ 2.5
• Helixtap assessed STR20 US$1455/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1397.5/mt CFR Hamburg Rotterdam, down US$ 2.5 
• Helixtap implied AFR10 US$1357.5/mt FOB Abidjan, down US$ 2.5

Helixtap weekly Physical Prices Assessment

• Helixtap assessed SVR10 US$1380/mt FOB Ho chi minh, down US$ 45
• Helixtap assessed SMR20 US$1480/mt FOB Klang Penang, down US$ 30
• Helixtap assessed TSR 20 US$1460/mt CIF China, down US$ 20 

Helixtap weekly Raw Material Prices Assessment

• Helixtap assessed Indonesian raw material IDR 19,050/kg ex-works, down IDR 450
• Helixtap assessed Thai raw material THB 40.5/kg ex-works, down THB 1.5
• Helixtap assessed Bulk latex US$1150/mt FOB Bangkok Laem Chabang, down US$ 50

The spot market saw a bearish contrary to the expectation of some revival in the price, banking on the return of the Chinese demand and the early start of the wintering. However, the prices took a nosedive as Chinese buyers opted for the domestic market while raw material prices plunged. 

Drop in raw material prices across the board 

The raw material prices saw some correction during the week owing to bearish demand. According to Helixtap market intelligence, some processors/producers are not too keen to buy raw materials as they are unsure of the demand outlook for next week. “Latex producers are buying less as they are afraid they will find it difficult to sell,” said a Thailand-based source, adding the Thai field latex prices for the week dropped to THB 48-THB 49/kg ex-works.

According to Helixtap data, Thai raw material prices dropped around 3.5% over January. The situation is interesting as there were reports and signs of early wintering in Thailand, which usually tightens the supply in the market. In addition, the production level in Thailand is already under 50%, and the uncertainty makes the situation more complicated. 

“Market is disappointed post Chinese New Year due to the performance at SHFE and inactive Chinese demand. Thus prices dropped fast, even though wintering is just around the corner,” the Thailand-based source added. 

The situation was not different for Indonesian raw material prices, with some softness over the week primarily driven by lower demand. Meanwhile, in Africa, APROMAC too pegged the African raw material prices largely stable over the week, even though some of the smaller producers feel the levels are slightly higher than the set level.

Physical market sees limited activities 

The market activities remained limited, weighing on the prices. Moreover, some depreciation in the Chinese yuan against the US dollar further deterred the Chinese buying interest. While there were reports of some major Chinese tire companies in the market, they opted to buy domestically rather than overseas cargoes. 

The traded level for SIR 20 dropped to US$1410/mt on FOB basis, which was around US$1440/mt earlier in the week, while for STR 20 the traded level during the day was at around US$1455/mt on FOB basis. However, there was a slight uptick in the monthly average of Indonesian raw materials, which is likely to weigh on the margins. 

However, owing to the wide gap between Thai and other sources, namely Indonesia and Africa, the buyers will likely opt for SIR and AFR in the coming week.

Producers apprehensive ahead of the China return

The spot market rally paused during the day owing to apprehension amid producers ahead of China’s return next week, despite some support over the week due to some buying from the tire majors.

Amid some early wintering reports in Thailand and Africa too prepping for wintering, the producers paused to assess the market situation. While the active buying from the major tire makers was expected to return, given the lower volume booked for long term contracts, the situation is still uncertain.

This could be an excellent boost for the rubber prices, given the SHFE stockpiles are about 70% of the amount before the November drawdown when the market closed last week. In addition, a slew of data showcasing some strength in the U.S. economy and slowing inflation would also boost market confidence.

Wintering plays a key role; producers cautious   

An early wintering in Thailand could push the prices higher. “The latex price is still up like a rocket,” said a producer source. According to Helixtap market intelligence, the wintering in Thailand is also early this year and is expected to be longer.

“Trees are not healthy, and green leaves are falling fast too,” the producer source noted, adding the impact is predominant in southern Thailand, the key rubber-producing region.

In 2022, STR prices rose around 4% over January and February, while this year, over January, the prices have increased by almost 9% compared to December.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1505/mt FOB Bangkok/Laem Chabang, down US$ 10 from January 26, 2023. Helixtap Thai raw materials prices, however, rose to THB 42/kg ex-work, up THB 3, and Bulk latex at US$1200/mt, up US$155, over the week.

The situation is also similar for the African market, with some tightness in raw material supply. “Typical of January. Planters accumulate before stopping for wintering and deliver in one shot. Looks like a normal rhythm for now,” said a market source.

This has resulted in some drop in the excess raw material stocks with the processors, making them cautious about offering in the market. In addition, the fluctuation in the exchange levels has also been impacting the African producers, impacting their confidence.

Meanwhile, there were talks of some disparity in pricing for African raw materials domestically. However, the market sources noted that the trend had been there for the past two-three months.

Helixtap African Rubber (AFR) 10 at US$1450/mt CIF Rotterdam/Hamburg, down US$15 on January 27, 2023.

Source: Helixtap
 

Indonesian producers are jittery despite being the most economical

Even though the demand picture looks positive, Indonesian producers are cautious. In the current market scenario, Indonesian rubber is the most economical option in the market. The January average gap between the Indonesian and Thai rubber is at negative US$37, while the average gap in January 2022 was US$1/mt.

Source: Helixtap

Making the situation more difficult is that the Indonesia raw material prices uptick was steeper than Thai raw materials during the week. As a result, the Indonesian producers’ margins will be severely under pressure, given the scope for imports of low cost African raw material is limited.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1462.5/mt FOB Belawan/Surabaya, down US$12.5 on January 27, 2023. Helixtap Indonesian raw materials prices rose to IDR 19,500/kg ex-work, up IDR 1000 over the week.

China’s return awaited

While the Chinese market was closed for the week for the Lunar New Year holiday and will reopen on January 30, the market awaits the Chinese buying to return. There is an expectation that economic activities in China will pick up post the removal of its COVID-19 curbs.

The narrative around China is bullish. However, there are still some doubts about the real strength of consumer demand, and there is also a possibility of some inflationary pressure building up. While this is positive for rubber prices, it could push the market back to the vicious cycle of rate hikes and recessionary pressure. Helixtap TSR 20- CIF China prices remained unchanged at US$1480/mt CIF China over the week.

Producers’ margins under pressure on volatile demand and currency

Some Thai rubber producers were struggling with a cash crunch amid the current price and demand volatility. While the week closed at a higher-level owing to some last-minute restocking from China and the return of some tire majors, the market lacked confidence for a sustained recovery.

Thai producers struggling

Amid the uncertainties, some Thai producers were seen struggling with some cash crunch. While there is some drop in Thai production and a possibility of early wintering, the lack of demand has resulted in a decline in raw material prices. 

"Our factories just informed field latex supply is already decreasing. So we have to get cautious. But not much demand either," said a producer source.

"Don't think many (producers) are willing to sell if they don't get the price. But to be cautious, specifically for latex. Better to be…," the producer source added. While Chinese buying has been strong this week, it was primarily a part of some short covering. In addition, there is skepticism in the market around the recovery in demand in February.

The situation turned tricky due to the appreciation in the Thai Bhat against the US dollar, which limited the processors' buying capacity. As a result, some processors were cautious about buying raw materials due to limited liquidity. 

STR prices rose around 5% over the week, while raw material prices dropped 4%. This would have been a very beneficiary week for the producers, but the Thai Bhat appreciated to 32.84, the highest since March 2022 against the US dollar.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, unchanged from January 19, 2023. Helixtap Thai raw materials prices, however dropped to THB 39/kg ex-work, down THB 1, and Bulk latex at US$1045/mt, down 50, over the week.

Indonesian rubber failed to catch up

Even though the sentiment was not bearish, the appreciation in the Asian currency kept the Indonesian producers' margins under pressure. As a result, some producers who rely on the currency differential to book profits took a hit. "Indonesian producers cannot make it no matter high or low premium," the source said earlier this week.

Indonesian rubber continued to be the most economical option in the market, and return of some of the tire majors supported the prices. However, the rise in the SIR 20 was relatively muted during the week.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, unchanged from January 19, 2023. Helixtap Indonesian raw materials prices, however dropped to IDR 18,500/kg ex-work, down IDR 200, over the week.

According to Helixtap market intelligence, some tire majors were back in the market since last week but were buying in small quantities. However, this week there was a significant improvement in buying. There was some buying back from Europe. The US market has been sluggish for over a month. As a result, African producers were too looking into the Asian market and China.

Wintering to start in Africa in February

Low-cost African raw materials imports aided some of the larger Indonesian producers to adjust their prices. However, wintering is likely to start in Africa soon as well. According to market sources, the Ivory coast's raw material will likely slow down as it is past the peak production season. There has been some rise in the local raw material prices as local factories are fighting to stock up on material for wintering in the Ivory coast as well.

Helixtap African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, unchanged from January 19, 2023.

Boost in market activity heading into Lunar New Year festive season

Since the year began, market prices recorded two straight weeks of increase above the levels seen late last year. Amidst ongoing concerns on the spread of Covid-19 via the Chinese border reopening, prices were observed to move in an inconsistent directional pattern. The net move upwards reflects a bullish start to the year as Chinese buyers resumed restocking prior to the festive season.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1,360/mt FOB Belawan/Surabaya, up US$15/mt, Standard Thailand Rubber (STR) 20 at US$1,385/mt FOB Bangkok/Laem Chabang, up US$5/mt, and African Rubber (AFR) 10 at US$1,360/mt CIF Rotterdam/Hamburg, unchanged on January 13, 2023. Additionally, TSR20 Mixture CIF China was assessed at US$1,425/mt, up US$5/mt.

Market intelligence suggests offers for STR20 (March 2023) shipments are in a range from US$1,410/mt to US$1,420/mt. SIR20 (March 2023) shipments were traded in a range of about US$1,325/mt - US$1,335/mt at the start of the week to about US$1,355/mt to US$1,365/mt on 13 Jan 2023. 

In the rubber futures, prices for the first four positional contracts ranged from US$1,287/mt to US$1,343/mt in end-December. As of Thursday on 12 Jan 2023, the same prices recorded an increase and ranged from US$1,357/mt to US$1,398/mt. The difference represents an increase of US$54/mt to US$70/mt across the four positions, reflecting the price optimism seen in the physical rubber market. 

In the physical rubber market, assessed prices for physical rubber grades also increased since late last year. Compared to the assessments above, STR20 and SIR20 prices rose by US$37.5/mt and US$47.5/mt respectively. For AFR10 and TSR20 China Mixture prices, a US$27.5/mt and US$20/mt respective increase was recorded.

Helixtap assessed Indonesian Raw Materials at IDR18,700/kg, up 200 IDR/kg ,Thai Raw Materials at THB41/kg, down 1 THB/kg and Thai Latex at US$1,095/mt, up US$20/mt. 

Source: Customs Data, Helixtap

As major supply sources in Thailand head into the wintering season, an expected shortage in supply would likely have a positive impact on price floors. Every year, wintering in rubber trees causes supply levels to fall significantly. Just last year, the same phenomenon was observed in Thai Raw Material exports into China via the HS code 400129. Naturally, Helixtap price assessments for Thai Raw Materials showed an increase in average monthly price levels up till March 2022. Afterwards, prices fell below the levels observed in December 2021 toward the end of the wintering season. 

Post-CNY, wintering in Thailand and Africa are expected to result in tight supply. Depending on the strength of demand, sellers in alternative locations in Indonesia and Vietnam may be able to capitalise and offer into China. As of early January 2023, SHFE inventory deliverables in  warehouses stands at a relatively low level of around 187,000 tons. This amount is about 27% lower than the average weekly inventory level seen in the past 52 weeks. Historically, this value is also about 34% lower than the historical average of about 284,000 tons on a weekly basis. 

Seasonally, physical market prices for STR20 and SIR20 were also observed to increase over most Januarys. For SIR20, prices increased over January in the last 6 years from 2017 to 2022 while STR20 prices either increased or stayed at the same level. As warehouse supplies are relatively lower than on an average week, a resumption in Chinese demand post-CNY may help in price recovery as well. Chinese buyers would be likely to continue importing via the global rubber market due to lower-than-average domestic inventory levels after the festive season. 

Correction in raw material prices weigh on spot 

Helixtap Daily Physical Prices Assessment

• Helixtap assessed SIR20 US$1410/mt FOB Belawan Surabaya, up US$ 2.5
• Helixtap assessed STR20 US$1455/mt FOB Bangkok Laem Chabang, down US$ 5
• Helixtap assessed AFR10 US$1397.5/mt CFR Hamburg Rotterdam, down US$ 2.5 
• Helixtap implied AFR10 US$1357.5/mt FOB Abidjan, down US$ 2.5

Helixtap weekly Physical Prices Assessment

• Helixtap assessed SVR10 US$1380/mt FOB Ho chi minh, down US$ 45
• Helixtap assessed SMR20 US$1480/mt FOB Klang Penang, down US$ 30
• Helixtap assessed TSR 20 US$1460/mt CIF China, down US$ 20 

Helixtap weekly Raw Material Prices Assessment

• Helixtap assessed Indonesian raw material IDR 19,050/kg ex-works, down IDR 450
• Helixtap assessed Thai raw material THB 40.5/kg ex-works, down THB 1.5
• Helixtap assessed Bulk latex US$1150/mt FOB Bangkok Laem Chabang, down US$ 50

The spot market saw a bearish contrary to the expectation of some revival in the price, banking on the return of the Chinese demand and the early start of the wintering. However, the prices took a nosedive as Chinese buyers opted for the domestic market while raw material prices plunged. 

Drop in raw material prices across the board 

The raw material prices saw some correction during the week owing to bearish demand. According to Helixtap market intelligence, some processors/producers are not too keen to buy raw materials as they are unsure of the demand outlook for next week. “Latex producers are buying less as they are afraid they will find it difficult to sell,” said a Thailand-based source, adding the Thai field latex prices for the week dropped to THB 48-THB 49/kg ex-works.

According to Helixtap data, Thai raw material prices dropped around 3.5% over January. The situation is interesting as there were reports and signs of early wintering in Thailand, which usually tightens the supply in the market. In addition, the production level in Thailand is already under 50%, and the uncertainty makes the situation more complicated. 

“Market is disappointed post Chinese New Year due to the performance at SHFE and inactive Chinese demand. Thus prices dropped fast, even though wintering is just around the corner,” the Thailand-based source added. 

The situation was not different for Indonesian raw material prices, with some softness over the week primarily driven by lower demand. Meanwhile, in Africa, APROMAC too pegged the African raw material prices largely stable over the week, even though some of the smaller producers feel the levels are slightly higher than the set level.

Physical market sees limited activities 

The market activities remained limited, weighing on the prices. Moreover, some depreciation in the Chinese yuan against the US dollar further deterred the Chinese buying interest. While there were reports of some major Chinese tire companies in the market, they opted to buy domestically rather than overseas cargoes. 

The traded level for SIR 20 dropped to US$1410/mt on FOB basis, which was around US$1440/mt earlier in the week, while for STR 20 the traded level during the day was at around US$1455/mt on FOB basis. However, there was a slight uptick in the monthly average of Indonesian raw materials, which is likely to weigh on the margins. 

However, owing to the wide gap between Thai and other sources, namely Indonesia and Africa, the buyers will likely opt for SIR and AFR in the coming week.

Producers apprehensive ahead of the China return

The spot market rally paused during the day owing to apprehension amid producers ahead of China’s return next week, despite some support over the week due to some buying from the tire majors.

Amid some early wintering reports in Thailand and Africa too prepping for wintering, the producers paused to assess the market situation. While the active buying from the major tire makers was expected to return, given the lower volume booked for long term contracts, the situation is still uncertain.

This could be an excellent boost for the rubber prices, given the SHFE stockpiles are about 70% of the amount before the November drawdown when the market closed last week. In addition, a slew of data showcasing some strength in the U.S. economy and slowing inflation would also boost market confidence.

Wintering plays a key role; producers cautious   

An early wintering in Thailand could push the prices higher. “The latex price is still up like a rocket,” said a producer source. According to Helixtap market intelligence, the wintering in Thailand is also early this year and is expected to be longer.

“Trees are not healthy, and green leaves are falling fast too,” the producer source noted, adding the impact is predominant in southern Thailand, the key rubber-producing region.

In 2022, STR prices rose around 4% over January and February, while this year, over January, the prices have increased by almost 9% compared to December.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1505/mt FOB Bangkok/Laem Chabang, down US$ 10 from January 26, 2023. Helixtap Thai raw materials prices, however, rose to THB 42/kg ex-work, up THB 3, and Bulk latex at US$1200/mt, up US$155, over the week.

The situation is also similar for the African market, with some tightness in raw material supply. “Typical of January. Planters accumulate before stopping for wintering and deliver in one shot. Looks like a normal rhythm for now,” said a market source.

This has resulted in some drop in the excess raw material stocks with the processors, making them cautious about offering in the market. In addition, the fluctuation in the exchange levels has also been impacting the African producers, impacting their confidence.

Meanwhile, there were talks of some disparity in pricing for African raw materials domestically. However, the market sources noted that the trend had been there for the past two-three months.

Helixtap African Rubber (AFR) 10 at US$1450/mt CIF Rotterdam/Hamburg, down US$15 on January 27, 2023.

Source: Helixtap
 

Indonesian producers are jittery despite being the most economical

Even though the demand picture looks positive, Indonesian producers are cautious. In the current market scenario, Indonesian rubber is the most economical option in the market. The January average gap between the Indonesian and Thai rubber is at negative US$37, while the average gap in January 2022 was US$1/mt.

Source: Helixtap

Making the situation more difficult is that the Indonesia raw material prices uptick was steeper than Thai raw materials during the week. As a result, the Indonesian producers’ margins will be severely under pressure, given the scope for imports of low cost African raw material is limited.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1462.5/mt FOB Belawan/Surabaya, down US$12.5 on January 27, 2023. Helixtap Indonesian raw materials prices rose to IDR 19,500/kg ex-work, up IDR 1000 over the week.

China’s return awaited

While the Chinese market was closed for the week for the Lunar New Year holiday and will reopen on January 30, the market awaits the Chinese buying to return. There is an expectation that economic activities in China will pick up post the removal of its COVID-19 curbs.

The narrative around China is bullish. However, there are still some doubts about the real strength of consumer demand, and there is also a possibility of some inflationary pressure building up. While this is positive for rubber prices, it could push the market back to the vicious cycle of rate hikes and recessionary pressure. Helixtap TSR 20- CIF China prices remained unchanged at US$1480/mt CIF China over the week.

Producers’ margins under pressure on volatile demand and currency

Some Thai rubber producers were struggling with a cash crunch amid the current price and demand volatility. While the week closed at a higher-level owing to some last-minute restocking from China and the return of some tire majors, the market lacked confidence for a sustained recovery.

Thai producers struggling

Amid the uncertainties, some Thai producers were seen struggling with some cash crunch. While there is some drop in Thai production and a possibility of early wintering, the lack of demand has resulted in a decline in raw material prices. 

"Our factories just informed field latex supply is already decreasing. So we have to get cautious. But not much demand either," said a producer source.

"Don't think many (producers) are willing to sell if they don't get the price. But to be cautious, specifically for latex. Better to be…," the producer source added. While Chinese buying has been strong this week, it was primarily a part of some short covering. In addition, there is skepticism in the market around the recovery in demand in February.

The situation turned tricky due to the appreciation in the Thai Bhat against the US dollar, which limited the processors' buying capacity. As a result, some processors were cautious about buying raw materials due to limited liquidity. 

STR prices rose around 5% over the week, while raw material prices dropped 4%. This would have been a very beneficiary week for the producers, but the Thai Bhat appreciated to 32.84, the highest since March 2022 against the US dollar.

Helixtap assessed Standard Thailand Rubber (STR) 20 at US$1460/mt FOB Bangkok/Laem Chabang, unchanged from January 19, 2023. Helixtap Thai raw materials prices, however dropped to THB 39/kg ex-work, down THB 1, and Bulk latex at US$1045/mt, down 50, over the week.

Indonesian rubber failed to catch up

Even though the sentiment was not bearish, the appreciation in the Asian currency kept the Indonesian producers' margins under pressure. As a result, some producers who rely on the currency differential to book profits took a hit. "Indonesian producers cannot make it no matter high or low premium," the source said earlier this week.

Indonesian rubber continued to be the most economical option in the market, and return of some of the tire majors supported the prices. However, the rise in the SIR 20 was relatively muted during the week.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1415/mt FOB Belawan/Surabaya, unchanged from January 19, 2023. Helixtap Indonesian raw materials prices, however dropped to IDR 18,500/kg ex-work, down IDR 200, over the week.

According to Helixtap market intelligence, some tire majors were back in the market since last week but were buying in small quantities. However, this week there was a significant improvement in buying. There was some buying back from Europe. The US market has been sluggish for over a month. As a result, African producers were too looking into the Asian market and China.

Wintering to start in Africa in February

Low-cost African raw materials imports aided some of the larger Indonesian producers to adjust their prices. However, wintering is likely to start in Africa soon as well. According to market sources, the Ivory coast's raw material will likely slow down as it is past the peak production season. There has been some rise in the local raw material prices as local factories are fighting to stock up on material for wintering in the Ivory coast as well.

Helixtap African Rubber (AFR) 10 at US$1415/mt CIF Rotterdam/Hamburg, unchanged from January 19, 2023.

Boost in market activity heading into Lunar New Year festive season

Since the year began, market prices recorded two straight weeks of increase above the levels seen late last year. Amidst ongoing concerns on the spread of Covid-19 via the Chinese border reopening, prices were observed to move in an inconsistent directional pattern. The net move upwards reflects a bullish start to the year as Chinese buyers resumed restocking prior to the festive season.

Helixtap assessed Standard Indonesia Rubber (SIR) 20 at US$1,360/mt FOB Belawan/Surabaya, up US$15/mt, Standard Thailand Rubber (STR) 20 at US$1,385/mt FOB Bangkok/Laem Chabang, up US$5/mt, and African Rubber (AFR) 10 at US$1,360/mt CIF Rotterdam/Hamburg, unchanged on January 13, 2023. Additionally, TSR20 Mixture CIF China was assessed at US$1,425/mt, up US$5/mt.

Market intelligence suggests offers for STR20 (March 2023) shipments are in a range from US$1,410/mt to US$1,420/mt. SIR20 (March 2023) shipments were traded in a range of about US$1,325/mt - US$1,335/mt at the start of the week to about US$1,355/mt to US$1,365/mt on 13 Jan 2023. 

In the rubber futures, prices for the first four positional contracts ranged from US$1,287/mt to US$1,343/mt in end-December. As of Thursday on 12 Jan 2023, the same prices recorded an increase and ranged from US$1,357/mt to US$1,398/mt. The difference represents an increase of US$54/mt to US$70/mt across the four positions, reflecting the price optimism seen in the physical rubber market. 

In the physical rubber market, assessed prices for physical rubber grades also increased since late last year. Compared to the assessments above, STR20 and SIR20 prices rose by US$37.5/mt and US$47.5/mt respectively. For AFR10 and TSR20 China Mixture prices, a US$27.5/mt and US$20/mt respective increase was recorded.

Helixtap assessed Indonesian Raw Materials at IDR18,700/kg, up 200 IDR/kg ,Thai Raw Materials at THB41/kg, down 1 THB/kg and Thai Latex at US$1,095/mt, up US$20/mt. 

Source: Customs Data, Helixtap

As major supply sources in Thailand head into the wintering season, an expected shortage in supply would likely have a positive impact on price floors. Every year, wintering in rubber trees causes supply levels to fall significantly. Just last year, the same phenomenon was observed in Thai Raw Material exports into China via the HS code 400129. Naturally, Helixtap price assessments for Thai Raw Materials showed an increase in average monthly price levels up till March 2022. Afterwards, prices fell below the levels observed in December 2021 toward the end of the wintering season. 

Post-CNY, wintering in Thailand and Africa are expected to result in tight supply. Depending on the strength of demand, sellers in alternative locations in Indonesia and Vietnam may be able to capitalise and offer into China. As of early January 2023, SHFE inventory deliverables in  warehouses stands at a relatively low level of around 187,000 tons. This amount is about 27% lower than the average weekly inventory level seen in the past 52 weeks. Historically, this value is also about 34% lower than the historical average of about 284,000 tons on a weekly basis. 

Seasonally, physical market prices for STR20 and SIR20 were also observed to increase over most Januarys. For SIR20, prices increased over January in the last 6 years from 2017 to 2022 while STR20 prices either increased or stayed at the same level. As warehouse supplies are relatively lower than on an average week, a resumption in Chinese demand post-CNY may help in price recovery as well. Chinese buyers would be likely to continue importing via the global rubber market due to lower-than-average domestic inventory levels after the festive season.