Having enjoyed a pronounced rally during last year’s third quarter—which extended the broader upward trajectory beginning in late 2022—rubber futures prices ended up reaching a seven-year high above 213 cents per kilogram (/kg) on October 2. Such strong bullishness reflected the acute global supply constraints in key rubber-producing areas and the robust demand for rubber products, led by China, that the global market experienced last year. But with prices having eased moderately since that peak to below 190 cents/kg by the start of 2025, observers are wondering whether the market has already peaked or if renewed strong upward momentum is on the horizon.
Widely found in products and applications—such as industrial goods, automotive parts, tires, gaskets, footwear and medical instruments—rubber’s distinct properties (such as its strong elasticity) make it a highly sought-after material for a broad range of personal and industrial use cases. In terms of the global market, two categories of rubber dominate: natural rubber, derived from the latex of tropical trees such as the Hevea brasiliensis, and synthetic rubber, made from petrochemical and natural-gas sources. Nearly three-quarters of the world’s natural-rubber production is located in Southeast Asia, with Thailand, Indonesia and Vietnam as three of the four biggest rubber producers due to their hot and wet tropical conditions being ideal for rubber trees to thrive.
Distinct challenges and constraints faced by these rubber producers, however, proved crucial in sending rubber prices to multi-year highs during the last couple of years. According to estimates from WhatNext Rubber Media International, the first quarter of 2024 saw rubber production in Thailand decrease on an annual basis by 18.3 percent, in Indonesia by 15.2 percent and in Vietnam by 2.7 percent. This reduction led to a massive annual decline in global production of 5 percent during the first four months of 2024, the Indian rubber-market intelligence firm also noted.
Extremely adverse weather conditions can explain much of this waning production trend. In the world’s top rubber producer, Thailand, for instance, a scorching heatwave during the first quarter of 2024 meant that the annual February-May wintering season of low production that rubber crops undergo was prolonged last year, with rubber trees suffering from stunted growth during such excessively hot conditions. This drought was then followed by heavy monsoon rainfall and major flooding in some areas, which proved significant in hampering the country’s rubber production during the peak season, normally lasting until September. “These fluctuations can drastically impact the tapping frequency of rubber trees and overall latex production,” Farah Miller, founder of rubber-focused data firm Helixtap Technologies in Singapore, explained to Reuters in October. As such, Helixtap projected a 10-15 percent decline in rubber output for 2024.
Typhoon Yagi also severely curtailed rubber production in China (the world’s fifth-biggest rubber producer) in early September, with key producing areas on Hainan Island, such as Lin Gao and Cheng Mai, experiencing substantial damage. According to the China Hainan Rubber Industry Group, around 230,000 hectares of rubber plantations were damaged by the typhoon, causing a decline of 18,000 tons of dry rubber output. And although rubber-tapping activity resumed shortly afterwards, heavy rains continued to hamper the processing of the raw latex throughout much of September.
According to WhatNext Rubber’s former cofounder and chief analyst, Jom Jacob, moreover, the unusually large number of rainy days and floods during 2024’s peak harvest season may have also led to rubber crops being damaged by leaf diseases. In southern Thailand, for instance, leaf-drop disease is an increasingly prevalent rubber pathogen that is adversely impacting both the yield and the quality of latex derived from rubber trees.
Prices have also been supported by longer-term demand and supply imbalances within the global rubber market, with some smallholder farmers in Thailand and Indonesia unable to source the necessary manpower to expand their rubber-planting areas to meet consumption levels. Others have switched out of rubber and into more profitable crops.
Indonesia, the world’s second-largest rubber-producing nation, for example, reportedly experienced a decline in output of 20 percent in the four years through 2023, with the number of rubber farmers in the archipelago nation dwindling considerably during this time. “Because the government did not actively support farmers, there was a rush to convert to palm oil and other products during the slump in rubber prices three to four years ago,” Shinichi Kato, president of a Tokyo-based rubber-trading company, explained to Nikkei Asia in late October. “There has also been limited progress in replacing old [rubber] trees with new ones.”
As was the case with the coffee market and other key global commodities, the rubber market’s bullishness prior to October 2024 also reflected farmers’ widespread expectations that the European Union Deforestation Regulation (EUDR) would come into effect by the end of 2024. When implemented, the new law will prevent the importation into the EU of commodities linked to deforestation; as such, rubber producers feared that their exports would be cut off from the EU market, which, in turn, elevated prices further.
This myriad of factors proved hugely influential in sending prices higher last year; Jom Jacob estimated that global rubber production in 2024 would be 1.2 million metric tons lower than global consumption. Analyst projections reported by Reuters in October, meanwhile, put the output of natural rubber in 2024 at up to 4.5 percent less than the previous year—around 14 million metric tons. Such production shortfalls proved hugely bullish for rubber prices last year—at least until the beginning of the fourth quarter (Q4).
Since the early-October peak, however, prices have cooled off, with the European Commission’s (EC’s) proposal to delay the EUDR by at least 12 months proving vital for the rubber market sell-off. “Given the EU Deforestation Regulation’s (EUDR) novel character, the swift calendar, and the variety of international stakeholders involved, the Commission considers that a 12-month additional time to phase in the system is a balanced solution to support operators around the world in securing a smooth implementation from the start,” the announcement of the proposed postponement published on October 1 read. “With this step, the Commission aims to provide certainty about the way forward and to ensure the success of the EUDR, which is paramount to address the EU’s contribution to the pressing global issue of deforestation.”
The impact of the EUDR’s delay by one year to December 2025 for large companies and to June 2026 for small enterprises on rubber prices has been decidedly bearish, with rubber exporters now not having to worry about being cut off from the sizeable EU market in the near term.
Other key factors have also contributed to the easing of rubber prices in recent months. The commencement of President Donald Trump’s second term in the United States, for example, has sharply raised the likelihood of the resumption of trade hostilities, especially in the form of higher US tariffs on imports from China, the world’s biggest importer of natural rubber. Such confrontational trade measures may well prompt consumers to hold off from buying rubber products. With many synthetic rubber products being manufactured from crude oil and refined petroleum products, the broad downward trend in oil prices during the fourth quarter has also helped to keep a lid on rubber prices.
According to the Association of Natural Rubber Producing Countries (ANRPC), such factors were instrumental in bringing down rubber prices in November, as they “engendered a ‘wait and see’ attitude among buyers with the intention to stock up [on] raw materials at a lower cost from more competitive sellers in preparation for [the] future’s rising demand”.
Such factors notwithstanding, rubber prices may not head much further south if future production estimates are to be considered, with the ANRPC also raising its forecast for shortages in global natural-rubber production in late September. The 13-member intergovernmental organisation, which collectively represents around 84 percent of global natural-rubber production, lowered its forecast for the supply of natural rubber in 2024 from 14.54 million tonnes to 14.50 million tonnes, largely in response to unfavourable weather conditions and growing evidence of the negative impacts of leaf fall disease in key production areas. Coupled with its upward revision for this year’s global rubber demand from 15.67 million tonnes to 15.75 million tonnes due to more upbeat expectations over China’s economic growth, the picture from the ANRPC’s figures clearly remains supportive of higher prices in the short term.
Even more bullish, however, was the ANRPC’s warning that the global rubber-supply shortage could persist until 2028, which would equate to an annual deficit of some 600,000 to 800,000 tonnes of rubber. But with more recent reports emerging that production in Thailand and Vietnam is rebounding thanks to more favourable weather conditions in early 2025, time will tell whether this current dip in prices from October highs is short-lived.
Source : Association of Natural Rubber Producing Countries ( ANRPC ) |
