Rubber market bounces around

Howard Evans -
Your Focus
- 3 Apr 2008 ( #354 )
2 min read
Howard Evans
Howard Evans
Howard Evans is Secretary-General of the Rubber Trade Association of Europe, a post he has occupied since association's establishment in 2002. Previously he was Secretary-General of the Association of the International Rubber Trade from 1998. He has been involved with the rubber trade for the past 38 years, much of that time as a rubber buyer for Goodyear. Howard may be contacted by telephone or fax at +44 (0) 20 8892 4177 or e-mail at howard.evans@rtae.org
It's been a bumpy ride for rubber prices in the past 12 months. Prices rose to peak in late May 2007, then weakened to a low in July 2007. Prices then recovered gradually over the next six months or so and ultimately peaked in late February 2008. Since then, prices have eased slightly to their current levels.

While there has been steady underlying demand for physical rubber, especially from China, during the past 12 months much of the price movement has been prompted, indeed driven, by outside funds (speculators), notably but not exclusively from Japan. Frequently, thin or quiet trading has been reported when prices have soared upwards on fund demand. This fund demand and subsequent intermittent profit-taking has also led to spells of unexpected price volatility.

The financial sector 'credit-crunch' difficulties of the past six months have impacted adversely less on commodities, including rubber, than might have been anticipated. Nevertheless, not even the booming Chinese manufacturing economy can be completely immune to the consequences of the anticipated recession in the United States economy. The US dollar weakness has also had an uncertain effect on prices during the past three months, which have sometimes reflected foreign exchange rate movements more than any underlying rubber price change.

The likely principal factor in determining rubber prices during the rest of 2008 is the performance of the US economy. While this may no longer be the pre-eminent global economic 'motor', any downturn in the US will have a significant impact on retail and manufacturing purchases from China and elsewhere and, at the least, weaken demand for manufactures. In this eventuality, rubber prices might be expected to weaken in absolute terms, if less so in terms of US dollars, because of the dollar's intrinsic weakness.

As commodity prices, including rubber, are only supported by speculative funds for any length of time as commodity prices rise, with any prolonged price weakness the funds would withdraw and their absence might be expected to further weaken rubber prices in 2008.

Let's now examine price movements for tyre-grade rubber:
  • At 2 April 2007, TSR 20 and 3RSS (the two main tyre grades of natural rubber) were in the price range €1,638 to €1,798 /metric ton CIF European ports, and the RTAE Market Index stood at 298.20.
  • At 2 July 2007, TSR 20 and 3RSS were in the price range €1,525 to €1,545/metric ton CIF European ports, and the RTAE Market Index had fallen to 266.46.
  • At 1 October 2007, TSR 20 and 3RSS were in the price range €1,605 to €1,638/metric ton CIF European ports, and the RTAE Market Index had risen slightly to 285.65.
  • At 2 January 2008, TSR 20 and 3RSS were in the price range €1,793 to €1,858/metric ton CIF European ports, and the RTAE Market Index stood at 320.98.
  • At 1 April 2008, TSR 20 and 3RSS were in the price range €1,795 to €1,834/metric ton CIF European ports and the RTAE Market Index stood at 318.36.
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