Highlights

• SICOM TSR20 P3 was more volatile in the 14 days leading up to recent Fed decisions

• Helixtap STR20 was also more volatile in the 14 days leading up to recent Fed decisions

• Thai differentials changed by an average US$11/mt daily in the period before and after recent Fed decisions

• SIR20 and AFR10 tend to flip between premium and discount to SICOM in fewer days than STR20

SICOM TSR20 P3 was more volatile in the 14 days leading up to recent Fed decisions

Source: SGX & Helixtap

The table above compares the average daily price change (ignoring direction) for SICOM TSR20 P3 in the 14 calendar days up to the Federal interest rate decision and in the following 14 calendar days. The SICOM contracts tend to observe daily price changes being more volatile leading up to the decision as compared to after. 

Helixtap STR20 tended to be more volatile in the 14 days up to recent Fed decisions

Source: Helixtap

Likewise, applying similar analysis to Helixtap STR20 prices for the recent Fed decisions also indicate that prices tend to be more volatile in the days before each Fed meeting where an interest rate decision was made. 

Thai differentials changed by an average US$11/mt daily in the period before and after recent Fed decisions

Source: SGX & Helixtap 

For the Thai differential, the price differential volatility in both periods before and after the same Fed decision meetings is split. Daily changes in the differential do not show a strong trend of being more volatile in either time period pre or post Fed meetings. However, the average daily change across all of these periods is about US$11/mt per day, regardless of direction. This means that it would be an issue to decide on a price differential to the SICOM contracts as STR20 may be at a US$10/mt premium over SICOM TSR20 P3 today. Tomorrow, this premium may increase by US$11/mt on average to US$21/mt. In this case, the producer could have locked in a higher differential for more profit.

STR20 price differential over SICOM TSR20 P3 changed by an average US$11/mt daily since October 2021

The average daily change in this price differential for the month up till 20 March is about US$6/mt, being slightly lower than the average since October 2021. Since then, this differential has changed by an average US$11/mt daily. Assume a Thai seller locked in a contract to sell STR20 at a US$26/mt premium over SICOM TSR20 P3 on 8 March 2023 for shipments due June 2023. Just 1 day after, this differential increases to US$37/mt for the same June shipment. The seller could have locked in a higher differential to sell STR20 at a higher premium over SICOM TSR20. This situation would be worse when there are larger swings in the price differentials, reflecting a loss of potential profits for the producer. 

But, changes in underlying macroeconomic variables will cause differentials to change drastically yet again, as illustrated in an earlier paragraph. Physical rubber prices and SICOM futures, although moving in the same direction, moved at different rates and resulted in the differential increasing. The current moving averages have been trending sideways, reflective of little change in physical rubber price differentials over the SICOM Futures. 

SIR20 and AFR10 tend to flip between premium and discount to SICOM in fewer days than STR20

Source: Helixtap, SGX

Historically since 2015, STR20 tended to trade at an average of 34 days at either a premium or discount to SICOM TSR20 P1. On average, it takes about 1 month to see STR20 priced higher than SICOM TSR20 if it was originally priced at a discount. This also applies to when STR20 was priced at a premium over SICOM and eventually became cheaper than SICOM. Comparatively, SIR20 and AFR10 take much fewer days to change between trading at a premium and a discount to SICOM TSR20. 

For market participants that used the differential between SIR20 and AFR10 against SICOM TSR20 in contracts, they were subjected to higher risk. Because the SIR20 and AFR10 differentials switch between premium and discount more frequently, fixing a price differential against SICOM to trade rubber would often result in unpredictable returns. Indo and African producers would be missing out on potential profit frequently when using SICOM as a benchmark. 

Helixtap physical rubber price assessments are market-surveyed prices across the supply chain and key demand nodes. These assessments are published based on a robust pricing methodology and are more reflective of the physical rubber market. For access to these price assessments, please contact alvin@helixtap.com.