Low point establish periodic regression
Since 2020, the price of Shanghai Rubber Futures continued to fluctuate upward after a low of 9360 yuan / T in March, breaking through the important pressure levels of 10000 and 13000, until hitting the 17000 mark. In retrospect, the low point of the industry cycle was basically established in the year and even this round. From the perspective of the three major natural rubber futures exchanges in Asia, the global natural rubber price has risen by nearly 50% from the low point in the year in 2020.
Due to its inherent natural production law, natural rubber can not be changed. The whole industry cycle is quite long, which tests the investment period and patience. The global natural rubber industry is on the right side of the bottom of the current business cycle. At present, the growth rate of supply (decline) is still slightly higher (lower) than that of demand (decline), but on the whole, the supply and demand relationship has returned to the relative balance from the serious oversupply in previous years.
Capacity base falls to the top
ANRPC statistics show that the global natural rubber planting area and tapping area are still growing by 2019. According to the natural production law, even if the periodic production reduction caused by weather, epidemic situation and other factors is excluded, the global natural rubber supply side will start to enter the de capacity cycle in 2020.
In terms of cutting area, the last round of rubber price peak triggered a large-scale planting boom between 2010 and 2012. According to the law of rubber tree cutting in the fastest seven years, the peak yield has just arrived in 2019. The method of calculating the cutting area is that the cutting area in the N + 1 year = the cutting area in the nth year + the newly added area in the n-6 year – the planting area in the n-6 year. Therefore, it can be inferred that the increasing trend of the new cutting area of the rubber producing countries will be maintained until 2020.
In terms of the growth trend of new species area, there is no doubt that the marginal growth rate of cutting area will slow down from 2020. However, since the vigorous production period of rubber is after 10 years of age, the production capacity will still be very large after 2020. It is conservatively estimated that there will be a natural negative growth in global natural rubber production by 2022.
Just need to support the bottom terminal to warm up
Excluding the seasonal factors, the demand of natural rubber downstream tire and automobile market will remain stable in 2020, and even rise steadily and unexpectedly.
China is the first large-scale outbreak and the first major economy to comprehensively control the epidemic. In the most difficult period, China’s considerable car ownership and the corresponding matching tires and replacement tires support the huge base of rigid demand. With the full resumption of production in the second quarter, the pent up demand for automobile tires has a retaliatory rebound. Until after the golden age, the production and sales volume of China’s automobile market continued to maintain positive growth.
At present, domestic demand has basically returned to normal, and it is difficult to significantly improve in the short term. In the future, the growth space of downstream demand will mainly come from the export market. It can be said that the worst period is over, but it does not mean that it will return to the level before the outbreak in a short time. Under the background of the second rebound of the epidemic situation in Europe and the United States, the core problem faced by the western economic restart is how to balance the return to work and epidemic prevention. It is likely that although overseas demand is gradually recovering, the marginal improvement speed will be relatively slow. In addition, with the rapid spread of the epidemic in emerging market countries, this part of the demand is facing a great impact, and the scale of the negative impact cannot be ignored. Overall, it is likely to wait until next year for global demand to return to normal. Overview of global rubber producing areas
Natural rubber is planted in more than 40 countries and regions in Asia, Africa, Oceania and Latin America. The natural rubber production in Asia accounts for 93% of the global total production, and the main production area is Southeast Asia. The association of natural rubber producing countries (ANRPC), composed of 13 countries including Thailand, Indonesia, Malaysia, Vietnam and even China, accounts for 90.5% of the global natural rubber supply. Among them, Thailand’s output accounts for 37% of the world’s total, while Indonesia’s accounts for about 23%. Together with Malaysia and Vietnam, the proportion of the four major rubber producing countries is as high as 80%.
Thailand is currently the world’s largest exporter of natural rubber, 80% of its total output is exported, and China is the most important consumer market of Thailand’s rubber. Thailand, Indonesia and Malaysia are the three traditional rubber producing countries, with the largest rubber plantation scale; Vietnam, Cambodia and other emerging rubber producing countries have risen rapidly in recent years, maintaining higher production growth. These countries play an important role in the global natural rubber supply, and their production areas need to be focused on. Limited by geographical location and phenological conditions, China’s natural rubber production accounted for only about 6% of the world’s total production at the highest time, but it was still a member of ANRPC.
Seasonal law of tapping operation
Natural rubber has the attributes of agricultural products in the supply side. It experiences the cutting season and cutting stop season periodically every year, and the opening and stopping time is different in different production areas. To grasp the seasonal law of rubber, we need to make clear the phenology and season of each major producing area.
The natural rubber planting area in Thailand is widely distributed, with the difference between South and North: the northern Thailand production area can be cut in mid April, and the tapping period will continue to February of the next year; the southern Thailand production area will enter tapping period in early May and stop tapping in the middle of February of the next year. Due to geographical differences, the phenological period of Indonesia is quite different from that of other rubber producing countries. Tapping usually starts in mid December and continues until October or even November of the next year. The start and stop time of cutting in Malaysia is similar to that in southern Thailand, and the production cycle in Vietnam and northern Thailand is basically the same.
China’s natural rubber production areas are mainly concentrated in Yunnan and Hainan: Yunnan usually starts cutting in mid late March, and stops cutting in mid November; Hainan starts tapping in April, and correspondingly stops cutting from mid December to the end of the year; domestic tapping period is generally about 8 months.
Southeast Asia and its surrounding areas are the main natural rubber production areas in the world, mainly Thailand, Indonesia, Malaysia and Vietnam. The natural rubber production of the four countries can basically represent the global supply level. According to the above rules, the total natural rubber production of ANRPC member countries in the fourth quarter reached the highest level within the year. At present, except Indonesia, which has entered the period of production reduction, other main production areas are moving towards peak production in peak season.
The overall situation of annual production reduction has been decided
2020 is a very unfavorable year for global natural rubber production. Affected by the outbreak of Xinguan epidemic, bad phenological conditions and insufficient tapping labor, the domestic production of natural rubber in Southeast Asia in the first three quarters decreased to varying degrees on a year-on-year basis.
According to the latest report of the association of natural rubber producing countries (ANRPC), in September 2020, the natural rubber production in Southeast Asia’s main production areas will be about 1049300 tons, with a year-on-year increase of 5.2% and a month on month increase of 2.68%; from January to September, the total output of natural rubber was 7.7971 million tons, down 7.3% compared with the same period of last year. By country, in the first three quarters, the cumulative natural rubber production in Thailand decreased by 2.04%, Indonesia by 13.18%, Malaysia by 11.54%, Vietnam by 5.06% and India by 3.31%. In terms of domestic production areas, China’s natural rubber production in September was about 111400 tons, a year-on-year decrease of 2.7%, and a month on month increase of 11.4%; from January to September, the total domestic natural rubber production was 426500 tons, with a cumulative year-on-year decline of 19.4%. To sum up, it can be seen that the long-term negative effect of global natural rubber supply surplus is undergoing a substantial reversal.
It is true that the data released by ANRPC and other authoritative institutions generally lag behind, but natural rubber is basically continuous in front of and behind, and is unlikely to be disturbed and reversed by short-term factors. Observing the dynamic development direction of long-term trend from the static data of each time node has important guiding significance for large-scale trading.
Bad weather and extreme phenology
Since 2020, the extremely severe weather caused by abnormal climate is the main uncertainty factor leading to the natural rubber supply release lower than expected. Looking back on the phenological conditions in the main production areas of this year, Southeast Asia was affected by the continuous drought in the first half of the year. After the rainy season in August, the natural rubber raw material output was not smooth, and the output of natural rubber decreased significantly.
According to the usual seasonal rule, after songgan Festival (water sprinkling Festival) in April, Thailand began a new round of tapping season, but the extension of hot season this year led to a longer low rubber production period in Thailand. The south of Thailand concentrated 59.8% of the country’s natural rubber production. The precipitation in spring this year did not reach the standard suitable for cutting for a long time, resulting in the slow release of raw material output. The drought not only formed adverse conditions for rubber tree tapping in the first half of the year, but also increased the maintenance difficulty of rubber forest, which reduced the resistance of rubber tree to diseases and insect pests, restricted the yield of glue for a long time, and even caused irreversible damage to the growth cycle of rubber forest.
Shortly after the end of the drought in spring and summer, Southeast Asia ushered in the rainy season flood disaster prone period, this year’s tapping work can be said to be in dire straits. Since the beginning of the rainy season in Thailand, rainfall has continued to be frequent. From July to September, typhoon senlak, haigos, bawai, mesak, Hongxia and other typhoons hit Thailand successively. Severe weather such as rainstorm and flood occurred in many areas. Malaysia and Indonesia also have excessive rainfall, and Vietnam often enjoys the scenery of Taiwan. Typhoon and heavy rainfall bring secondary disasters such as flood, which lead to blocked tapping and transportation in the production area, and the output of raw materials is obviously inhibited.
Although the main production areas of Southeast Asia began to enter the tapping peak season in November, the process of new rubber production was not as expected, and the seasonal growth of yield would be limited, which could not make up for the deficit of the whole year. In view of the serious shortage of supply in the main production areas and the shortage of goods, it is difficult to purchase. Thai rubber suppliers intend to control the sales rhythm. They give priority to the supply of long-term orders, and the latex control orders are limited in sales. People in the production areas said that even if the weather conditions were perfect, it would be difficult for rubber production to increase rapidly and substantially due to the shortage of tapping workers. Under the expectation that the peak production season is not strong, the tight supply pattern of natural rubber market in Asia will continue, and there is no reason to think that there will be a retaliatory rebound in supply.
The epidemic is intensifying and there is a shortage of manpower
Natural rubber production depends on the change of tapping area in a long period, and depends on production and market factors in the short term. Excluding the uncontrollable items such as weather, labor price has a great impact on tapping enthusiasm. Compared with other agricultural products, rubber tree belongs to extensive management. After planting, it only needs basic maintenance such as weeding and fertilization. Therefore, the labor cost of tapping is the most important production cost. The proportion of raw material purchase price is usually 6:4 or 5:5 for rubber plantation owners.
The situation learned from Thailand production area is that due to the long-term depression of rubber planting industry and low income, a large number of professional tapping workers have been lost. In Thailand, there is an increasing shortage of tapping labor, and some rubber plantations are faced with the embarrassing situation that no tapping workers can be found. They mainly rely on foreign workers from Myanmar, Laos, Cambodia and other countries. This year’s epidemic has a relatively small impact on the output of raw materials. However, Thailand’s strict epidemic prevention and blockade policy has hindered the inflow of foreign workers, aggravating the problem of insufficient tapping manpower.
The bear market of rubber in recent ten years has resulted in the reduction of farmers’ income in groups and regions, and the loss of tapping workers and other phenomena in rubber plantations have inhibited the growth of production. The supply side trap formed by the long-term low price hindered the source of natural rubber production. The traditional labor-intensive industry encountered labor shortage, and the natural adjustment of market capacity clearing provided the possibility of rubber price rise.
Rubber planting in China
China’s natural rubber planting area is more than 17 million mu, mainly distributed in Yunnan, Hainan and some parts of Guangdong. Different from Southeast Asia, the natural rubber production area in China usually starts cutting from the end of March to the beginning of April, and the production reaches the peak of the year in October. After December, the production declines rapidly and gradually enters the cutting stop period. Due to the influence of drought, powdery mildew, epidemic situation and other complex factors, the result of annual production reduction has been determined.
The natural rubber production level in Yunnan is relatively stable, accounting for more than 50% of the country, of which 90% is concentrated in Xishuangbanna. The average yield per mu of rubber forest is 100-110 kg / mu, and the yield of rubber forest in opening stage is more than 200 kg / mu. In general, the rubber trees in Yunnan Province can be maintained by fertilizing for 35-35 years. The planting area of rubber trees in Hainan is about 8 million mu, of which the cutting area is 5.88 million mu, and the average yield is about 80 kg / mu. The rubber planting conditions in Hainan are poor. The increase of rubber yield is hindered by frequent typhoon and low soil fertility.
This year, China’s natural rubber producing areas are also suffering from bad luck. Affected by the epidemic situation at the beginning of the year, the lack of maintenance in the early stage of rubber plantation, high temperature and drought in spring and the outbreak of powdery mildew in spring delayed the growth of new leaves of rubber trees in domestic production areas, resulting in large-scale delay in cutting. The main production areas of Yunnan and Hainan generally delayed about 50-60 days. After entering June, the production areas began to cut, but due to the shortage of rubber workers and the low price of glue, the release of fresh glue was slow. In the third quarter, the continuous rainfall in Yunnan hindered the tapping operation, and the output rate of raw materials was still not smooth. From the end of September, the weather in Yunnan gradually tended to be normal, and the release of raw materials in the production area was stable. However, in the middle and late November, Yunnan was faced with cutting stoppage. Even if the processing plant started at full capacity, it was difficult to make up for the loss of production in the whole second and third quarters. Affected by typhoon weather, Hainan production area has few raw materials, large factories rush to buy glue at high prices, and private rubber processing plants lack of raw materials.
Under the influence of a series of adverse factors, Zhuo Chuang estimates that China’s natural rubber production will be around 700000 tons in 2020, about 15% less than that of 815000 tons last year. In addition, the epidemic situation stimulated the demand for medical gloves, which made concentrated latex popular. The production profits of processing plants were considerable. A large number of raw materials of latex from different production areas were diverted, especially the glue in Hainan area, which was basically used for the processing and production of concentrated latex. From the perspective of domestic natural rubber supply side, the abnormal phenology and concentrated milk diversion raw materials are expected to reduce the whole milk production by about 80000-100000 tons this year, with a year-on-year decrease of about 30%. Although the change of China’s output is not significant relative to the total ANRPC, the price of rubber futures can rise significantly, which is supported by the shortage of domestic raw materials and delivery products.
Both supply and demand fall
The impact of global public health events on natural rubber supply and demand is asymmetric. Even in the period of the most severe epidemic prevention and blockade, the Thai government announced a curfew, but the impact of the epidemic on the demand for automobile tires downstream of rubber was real.
According to the preliminary statistics of the association of natural rubber producing countries (ANRPC) and the forecast of the remaining time of the year, the report predicts that the global natural rubber production will be 13.249 million tons in 2020, 4.9% lower than that in the previous report (13.195 million tons or 4.5%); in 2020, the global natural rubber consumption will be 12.544 million tons, 8.9% lower than that of the previous report Predicted value (12.754 million tons or 7.3% decrease).
On the whole, ANRPC lowered again and maintained the basic view of global natural rubber supply and demand in 2020, and the change of supply-demand relationship was completely digested by the market. Excluding the impact of the epidemic situation, the global downstream demand for natural rubber has entered a low growth period, but there is not much room for compression.
Structural adjustment of tire industry
Although the industrial production including tire manufacturing industry recovered orderly with the economic recovery, the impact and change on the rubber tire industry chain may be irreversible.
The phenomenal capacity shrinkage of the world’s top tire enterprises, including Bridgestone, Goodyear, Mapei and Michelin, is not an accidental independent event, but is determined by the downward trend of the industry cycle. The main reason for the structural transformation of automobile tire industry is that the global demand is falling sharply due to the epidemic situation, the European and American markets lack growth expectations, and the Asian tire manufacturers make the competition more and more fierce. In other words, the main strategy for manufacturers to reduce the production cost of backward tires is to gradually reduce the production cost of backward tires, that is, to reduce the production cost of backward tires as much as possible. This is doomed to tire enterprises investment increasingly cautious, generally only in the factory upgrade to a certain extent, will not easily build new factories to expand production capacity. From the perspective of the current global economy and tire market, the next few years will be a major adjustment period for the global tire industry. Measures such as integration, closure, restructuring and layoffs will continue to flow. The direct demand for natural rubber downstream is mainly to maintain stability.
The overall development trend of domestic rubber tire industry is better than that of overseas, but it is difficult to be independent in the macro and industry cycle environment. At the beginning of the year, the epidemic hit the industrial production order seriously. Fortunately, China was the first to comprehensively control the epidemic. In the second quarter, with the full implementation of resumption of work and production, the operating rate of the tire industry rose rapidly. In terms of the recent operation of the tire market, it is expected that the starting load of the tire factory will be stable and fine tuned. The orders of various manufacturers are still considerable, the output can be arranged relatively ideal, and there is no expectation of a decline in the start-up. Driven by the continuous shipment in the early stage, the overall inventory level is not high. Considering the normal supply market and the demand for goods preparation before the year, tire enterprises will replenish the inventory and it is difficult to reduce the output. Despite the second rebound of the epidemic situation and the expectation of environmental protection and production restriction in heating season, China’s tire industry can maintain a low positive growth trend.
The overseas epidemic situation has seriously affected the demand for tires, and the lack of orders from traders is the main reason why tire exports are not optimistic at the end of the year. Although the second spread of the epidemic situation in Europe and the United States and the re blockade of some regions, the global rubber tire industry chain is difficult to be blocked, the export market may maintain a certain toughness, and the overall export situation of China’s tires will not avalanche. From the second quarter to now, the epidemic situation in foreign countries has lasted for a long time, but people have to live and produce at all times, so it is difficult to have too much impact on the actual demand on the margin. Considering the market situation, it is expected that China’s tire export will still achieve positive growth on a month on month basis, but the growth rate will slow down. As the uncertainty of the external macro environment decreases, the overall situation of China’s tire trade in the future is expected to be relatively stable, at least the demand for natural rubber will not constitute a significant negative.
Domestic automobile production and sales are still good
After experiencing the heavy blow of the epidemic, China’s auto market showed obvious signs of recovery. In April, the situation of epidemic prevention and control in China gradually improved. With the introduction of a series of policies to encourage consumption by the government, the production and sales of the automobile industry recovered and conformed to the overall situation.
In the early stage of the epidemic situation, the demand for automobile orders was suppressed, which played a positive role in promoting the domestic market. China’s auto production and sales began to release in the second quarter, even reversing the year-on-year decline of the auto market for 21 months. According to the data released by China Automobile Industry Association, up to the latest statistics, the overall national automobile market continues to grow year-on-year. In October, China’s automobile production and sales reached 2.522 million and 2.573 million, respectively, up 11% and 12.5% year-on-year, and 0.9% and 0.1% month on month. After the epidemic, automobile production and sales have been growing for seven consecutive months. In the first 10 months of this year, the cumulative production and sales volume of domestic automobile were 19519 million and 19.69 million, respectively, down 4.6% and 4.7% compared with the same period of last year. Although the decline of automobile sales in the whole year is inevitable, the decline rate continues to narrow month by month, which is good news.
In terms of specific market segments, the growth rate of commercial vehicle sales is still better than that of passenger cars, which is the main support for terminal consumption of rubber tire automobile industry chain. In October, about 129000 models of various types were sold in the national heavy truck market, with a sharp increase of 41% year-on-year, although the month on month decrease was 14.3%. In October, heavy truck sales hit a new high as scheduled, and it has been 7 months since the beginning of the year to break the historical record of the same period. From January to October, the heavy truck industry sold 1.365 million vehicles in total. In fact, the cumulative sales volume in the first three quarters exceeded that of last year’s 1.17 million. After the end of the gold, nine and ten silver medals, heavy truck sales are expected to hit a record of 1.5 million or even higher in 2020.
The driving forces for the continuous growth of China’s heavy truck market mainly come from the following aspects: the full implementation of the policy of early elimination of state III diesel trucks has created the largest dividend for the development of the heavy truck market this year; the intensity of the policies to deal with overload and overrun has not been reduced, and the governance of national roads and medium and short distance branch lines has become more stringent, resulting in a large number of purchase of compliance standard load heavy trucks and lightweight heavy trucks; the epidemic situation It forces the construction period of infrastructure projects to be postponed, so that the demand for construction vehicles in peak season is moved back synchronously; the policy of charging by axle is adopted for expressways, and the structure of heavy truck models is changed.
From the industry dynamic point of view, the national production and sales of passenger cars and commercial vehicles will continue to grow, and the favorable support for rubber will continue. At present, it can be said that the profit growth of the whole rubber industry is mainly driven by the truck all steel tire industry. In the future, we should focus on the production and sales of heavy truck market as an important determinant of the trend of natural rubber terminal demand. At the time of the peak supply season of Southeast Asia in the upstream, the stability and improvement of China’s terminal consumer market is the reassurance to maintain the balance of natural rubber market. The improvement of new rubber output is not as expected and the excellent performance of domestic automobile tire market, which fundamentally improves the contradiction between supply and demand of rubber.
Medical gloves create demand
For a long time, more than 70% of the downstream demand of natural rubber has been used in the tire manufacturing industry, and the consumption in other aspects is not significant. However, this year’s global public health events caused changes in the supply and demand structure of natural rubber, making the automobile tire industry in crisis, but stimulating the demand for medical rubber gloves. According to the industry forecast, from 2020 to 2021, the global market value of latex gloves will increase by 16.0% and 14.9% respectively; from 2020 to 2027, the global market value of latex gloves will grow at an average annual rate of 12.6%, thus continuously boosting the demand for concentrated latex.
Natural rubber downstream demand structure is changing, feedback to the supply side, causing significant changes in rubber production and raw material diversion. Most of the raw materials obtained from the processing of fresh latex are fresh latex, which are processed in the middle of the rubber chain, and most of the rubber products obtained from the processing of fresh latex are processed in the rubber industry, and most of the products obtained from the processing of fresh latex will be processed in the middle of the rubber industry. As natural latex is the basic raw material for latex gloves, concentrated latex will become one of the most important rubber products in Thailand in a certain period of time.
In the past, natural rubber production in Thailand was mainly concentrated in STR and RSS grade rubber, which was used as raw materials for automobile tires. The surge in demand for rubber gloves this year has driven rubber producers to shift their production capacity to latex, which is used to make rubber gloves. Thailand’s latex production is expected to account for 30% of total natural rubber production this year, compared with 20% last year. Malaysia is the largest manufacturer of latex gloves in the world. In the case of not accepting new orders from new customers, the orders of glove processing plants have been arranged until next year, which greatly stimulates the demand for natural latex.
Although the new crown vaccine has been successfully developed and will soon be applied, considering the development of global health industry, the aging society of major economies, and the improvement of public health system quality standards in developing countries, the global demand for latex gloves will maintain growth in the long run. The demand of concentrated latex increases with the order of latex gloves, and the competition of concentrated latex in the market is not fierce. Most rubber products are still of low quality and cannot replace the cup glue of concentrated latex. In the future, the average growth rate of global natural rubber production may also be lower than the growth rate of demand for latex gloves, so as to keep rubber prices strong.
Trend differentiation of spot stock
Natural rubber inventory change is the wind vane of medium-term market and the fixed star of long-term trend. From 2020 to now, China’s natural rubber spot inventory structure shows an obvious differentiation trend, which shows that bonded inventory is stable while general trade inventory is more accumulated. During the year, the natural rubber inventory in Qingdao had two characteristics: the total inventory was rising; the polarization between bonded inventory and general trade inventory was intensified.
Bonded inventory is mainly from US dollar standard rubber imports, which is mostly used for the production of export tire products, which adapts to the foreign trade mode of Shandong tire enterprises. Although the supply of Southeast Asia’s main production areas has shrunk this year, the import of standard rubber is on the low side, and a large part of it belongs to the warehouse receipt of No. 20 rubber, the bonded inventory has not been significantly reduced compared with the same period in previous years, mainly due to the weak consumption in the European and American export market and insufficient follow-up of tire export orders.
The general trade inventory is mostly RMB mixed rubber, and the import driving force is mainly from non-standard arbitrage. China’s economy was the first to recover from the epidemic, and domestic demand rebounded to stimulate the import of mixed rubber. Although the logistics transportation was stagnant for a time due to the epidemic situation, the obstacles to the arrival of imported mixed rubber ships were relatively small, resulting in the continuous rise of general trade inventory. Arbitrage traders usually lock in the mixed rubber ships after 1-3 months. With the narrowing of the current price difference in the second half of the year, the arbitrage chamber of Commerce will gradually reduce their positions. Finally, all the remaining arbitrage plates in the whole year will be closed on contracts 09 and 11. In the case of no significant increase in domestic demand, the source of goods is mostly in the warehouse or exchange between traders, and the large amount of inventory flowing into the spot market is difficult to be really digested.
In terms of natural rubber inventory in Qingdao, bonded spot inventory was basically the same as that in the past two years, but the general trade inventory was significantly higher than the same period, and there was no sign of de stocking. The total rubber inventory was still very large and difficult to be removed. Based on the calculation of the supply and demand balance table, it is estimated that the domestic rubber social inventory will reach about 1.5 million tons this year, an increase of 150000 tons compared with that in 2019. After 19 years of small scale de stocking, the outbreak of the epidemic led to a significant accumulation of rubber stocks worldwide. In 2020, the global natural rubber inventory is expected to increase to 3.66 million tons, a record high. It will be normal for a period of time in the future that the natural rubber spot inventory is difficult to return. Therefore, the logic of natural rubber market lies in the problem of which is the relative faster recovery of supply and demand.
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Core logic of warehouse receipt decrement
In this year’s natural rubber market, the improvement of supply-demand relationship is the basis, La Nina weather speculation is the incentive, and the reduction of whole milk warehouse receipts is the core logic.
As early as 2019, after the centralized cancellation of old rubber warehouse receipts of the exchange, the inventory of natural rubber warehouse receipts dropped significantly to less than 170000 tons, the lowest level since 2016 in the same period. Due to the delayed production of new rubber and the limited amount of new registered natural rubber, the warehouse receipt warehouse of the stock exchange will be around 220000-230000 tons in most of 2020, which is about half of the data of the same period in recent years. According to the data released by the exchange, about 190000 tons of old rubber warehouse receipts will expire in November, and the number of warehouse receipts will drop sharply after compulsory cancellation. The new total milk warehouse receipts in January contract were only 60000-70000 tons, about 45% less than the same period last year. According to the five-year average, more than 60000 tons of new rubber warehouse receipts (to be produced after 2020) will be added by the end of the year, and the number of disk warehouse receipts will be only about 100000.
Generally speaking, the quantity of natural rubber delivery products that meet the standards of the previous period is about 350000-400000 tons each year. Most of these goods will enter the futures market to form warehouse receipts, and then write off and flow into the spot market according to the regulations. Due to the relatively low premium of rubber futures in the first three quarters of this year, and the absolute value of futures price in the first half of this year is too low, which leads to the poor enthusiasm of entering hedging. With the natural rubber futures price rising and basis widening, new rubber warehouse receipts will enter the futures market one after another, and the hidden inventory will be transformed into explicit inventory.
According to the experience of the past years, the storage amount of new rubber in the fourth quarter is higher than that in other months, which is mainly due to the transition from October to November in domestic production areas after the third quarter of rainy season, and the output of rubber raw materials is seasonally large. However, this year’s tapping operation is seriously hindered, which aggravates the problem of tight supply of goods, and it is difficult to effectively increase the production of scrwf in the fourth quarter. From the domestic rubber production situation, although the seasonal recovery brings certain increment, the sharp decrease of annual delivery inventory has been settled. Since the contradiction of whole milk warehouse receipt has not been solved, the main logic of insufficient delivery quantity has not been changed.
Imports recovered from the outbreak
China’s natural rubber dependence on foreign countries is as high as 85%, domestic production is relatively small, and most of the consumption depends on imports. Although Shanghai Rubber delivery products are mainly domestic latex, imported mixed rubber and standard rubber are the main raw materials for manufacturing domestic and foreign trade tires, so the import volume largely reflects the real market supply level. In the early stage of 2020, the rubber import trade will be impacted by the epidemic situation, but in the whole year, China’s natural rubber import volume is basically consistent with the normal market supply-demand relationship.
Thailand, Indonesia and Malaysia are the main import source countries of natural rubber in narrow sense, while Thailand, Vietnam and Malaysia are the main import sources of rubber type mixed rubber with the largest import volume in China. Although the epidemic situation is a major disturbance factor this year, import and export still reflect the evolution trend of rubber producing countries in the future. The growth of natural rubber production in Thailand, Indonesia and Malaysia slowed down, and the growth and decline of new planting and replanting led to the decline of cutting area, but the stock was still very large. The natural rubber production and export of emerging rubber producing countries represented by Vietnam, Cambodia and some African regions are increasing year by year, occupying a place in the market, but the base number is still insufficient.
China is a big consumer of natural rubber, accounting for about 40% of the total use of natural rubber in the world. According to the data of the association of natural rubber producing countries (ANRPC), from January to October 2020, China’s cumulative imports of natural rubber exceeded 4.5 million tons, but increased by 587000 tons over the same period last year. China’s auto market out of the trough, driving the recovery of automobile tire production and sales, significantly boosting the terminal consumption, is an important reason to leverage rubber import demand. Although China’s natural rubber imports increased despite the epidemic situation this year, considering the sluggish peak season in the main production areas of Southeast Asia, the situation of late ship arrival in Hong Kong may not be as good as in previous years.
RCEP influences tariff policy
Including China, ten ASEAN countries and 15 countries including Japan, South Korea, Australia and New Zealand have formally signed the regional comprehensive economic partnership agreement (RCEP), marking the formal conclusion of the largest free trade agreement in the world, which is conducive to the realization of high-level trade liberalization in the region. In 2019, the population size of the 15 RCEP member countries is 2.27 billion, the GDP is 26 trillion US dollars, and the total export volume is 5.2 trillion US dollars, accounting for about 30% of the global total (the volume is higher than usmca and cptpp). The RCEP free trade zone is expected to promote China to form a dual cycle development pattern. After eight years of negotiation, RCEP will realize zero tariff for 90% of goods trade, and China and Japan have reached a bilateral tariff reduction arrangement for the first time; unified rules of origin allow the calculation of product added value within the scope of RCEP; broaden the access to service trade and transnational investment; and add new rules for e-commerce facilitation.
From the perspective of the import structure of China’s industries in 2019, the industries with the largest import amount are electrical and mechanical equipment and their parts, television, mechanical equipment, optics and precision instruments, minerals, steel, copper, and natural rubber. China is the world’s largest natural rubber importer, with an import dependence of about 85%. The main import sources are Thailand, Malaysia, Indonesia, Vietnam, Myanmar, Laos and Cambodia, all of which are RCEP members. Thailand is the most important natural rubber purchasing channel in China, with the import volume accounting for more than half; the proportion of natural rubber imports from Malaysia and Indonesia decreased from 20% to about 10%; and the proportion of goods from Vietnam and other emerging rubber producing countries gradually increased, but not more than 8%.
China needs to import millions of tons of natural rubber every year. However, the problem of tariff remains unresolved. China and India are the few countries in the world to impose tariffs on natural rubber. China Rubber Industry Association has been calling for reducing the import tariff of natural rubber, but at present, China still implements higher tariff on natural rubber import.
In the past, there was a quota for the import of natural rubber in China. After 2004, the tariff quota system of natural rubber was cancelled, but the import tax rate of cigarette leaf rubber and standard rubber was increased to 20%. In 2007, the mechanism of reducing specific tax and ad valorem tax was introduced. According to the adjustment plan of the provisional import tax rate implemented by the Tariff Commission of the State Council from 2019 to 2020, the import tariff rates of natural and synthetic rubber and other raw materials are as follows: 40011000 natural latex tax rate is 10% or 900 yuan / ton; 40012100 natural rubber smoke film tax rate is 20% or 1500 yuan / ton; 40012200 technical classification natural rubber (tsnr) tax rate is 20% or 1500 yuan / ton, all of which are levied from a lower level.
Under the background of high tariff on natural rubber, rubber varieties with local characteristics such as mixed rubber and compound rubber came into being. In 2009, China reduced the tax rate of ASEAN countries in different ranges. In addition to Vietnam maintaining 5%, Thailand, Indonesia, Malaysia and other countries agreed to reduce the tax rate to 0%. Under the zero tariff project of ASEAN agreement, the domestic tire manufacturing industry has to use this kind of raw materials with low price and high price to produce automobile tire in order to avoid tariff, which seriously hinders the high-quality development of the industry.
The RCEP has been officially signed. Next, the Member States will negotiate and implement the tariff issue. It is expected that the FTA will achieve significant phased construction results in a few years. With the development of tariff reduction, it is possible for China to reduce or even cancel the import tariff of natural rubber in the future. If the import tariff of China’s natural rubber gradually drops to zero, the downstream tire industry will lose the demand for tax avoidance, and the mixed rubber with inferior quality and high price has no competitive advantage over the standard rubber, and will eventually withdraw from the historical stage of rubber market
Of course, the assumption of zero tariff will have a certain impact on China’s natural rubber industry in the short term. In the previous period, the full latex futures were delivered with duty, while the energy 20 rubber futures were delivered in bond. The tariff policy mainly affected the former. However, in the long run, breaking the tariff barrier will help to correct the abnormal price difference between internal and external disk, and repair the high spot price of domestic all latex. The signing of RCEP agreement is conducive to the healthy development of natural rubber industry. Tariff reduction or reduction can further promote rubber trade and improve the effectiveness of market price formation mechanism. The above is a reasonable deduction based on the market, and the final result should be subject to the official announcement of the General Administration of customs.
The current basis tends to return
In China’s natural rubber market, there has been a long-term problem of mismatch between futures delivery and spot circulation. Due to the different application fields of all latex and mixed rubber, warehouse receipts are difficult to flow into the spot market, so rubber futures and spot pricing system are separated.
In the current Shanghai Rubber Futures and cash arbitrage scheme, the demand for deliverable all latex is relatively small in the downstream of natural rubber, and non-standard arbitrage has become the mainstream arbitrage mode. The spot targets include mixed rubber and Vietnam 3L. As the contradiction between supply and demand intensifies, the term structure of rubber varieties shows a long-term rise in the long-term.
In recent years, the monthly premium of Shanghai Jiaoyuan was about 2000 yuan / ton, and it reached more than 3000 yuan / ton in the second half of 2017, which stimulated the activity of non-standard arbitrage. Arbitrage is caused by the price difference. With the narrowing of the price gap and the compression of the profit space, the strength and weakness of the internal and external markets change, which has a certain inhibitory effect on imports. The phenomenon of passive inventory hoarding caused by traders’ non-standard arbitrage is being curbed.
As time goes on and the market improves, it is unreasonable for abnormal price spreads not to return for a long time. Although the high return of Shanghai Rubber current price difference is relatively slow, it has gradually converged to around 1000 yuan / ton in the past three years. It is expected that the global natural rubber supply and demand relationship and price difference structure will continue to repair in the future.
The rising water gradually converges
The price of the new full latex registered warehouse receipt is generally against the price of the 01 contract, which keeps rising along with the long month to the recent month, which leads to the delivery pressure of the last main 09 contract every year. At the same time, it causes the phenomenon that the 01 contract listed on the market of new glue will jump short and open high every year.
The design of natural rubber futures contract makes 09 contract have natural short property: about 2 months before the delivery of 09 contract, the investor reversed 09-01 short position, and the 9-1 price difference was widened significantly; with the delivery date approaching, investors short the 9-1 spread out of the logic of return to cash, waiting for the spread to return to profit.
In 2017, the largest price difference between September 1 and 1 was as high as 3450 yuan / ton, and gradually converged to 1000-1100 yuan / ton since 2018. The pressure on warehouse receipts faced by the contract in September this year was obviously small, and the delivery logic was completed ahead of schedule. The downward pressure caused by the cancellation of old warehouse receipts was not obvious. In the following January, the value of new rubber returned to normal, and it is expected that the premium of new and old rubber included in the price difference of Shanghai Rubber 9-1 should keep shrinking trend.
In addition, the futures of No.20 rubber gradually become mature, which provides a new choice for industrial investors to carry out futures arbitrage, or partly replace the non-standard arbitrage mode of mixed rubber and Shanghai rubber. Due to the continuous contract form from January to December, the liquidity of delivery products in the spot market is enhanced, and the price difference in recent and far months can effectively reflect the relationship between supply and demand. The premium of new rubber in contract 01 will be greatly reduced, which will narrow the arbitrage space of 9-1 price spread.
Where is Lanina sacred
The experience of an old rubber farmer in Xishuangbanna did not receive enough attention in the previous investigation of rubber producing areas in China. The old rubber farmer said that in the case of severe drought in the first half of the year, there is a greater possibility of serious flooding in the second half of the year. The frequent occurrence of extreme weather this year, as well as the abnormal performance of some agricultural products, including natural rubber, have caused the market to pay attention to La Nina phenomenon.
La Nina is La NIA in Spanish, which means saint or little girl, corresponding to El Nio, the name of El Nio, the meaning of the son. La Nina refers to an abnormal drop of water temperature in the eastern Pacific near the equator, accompanied by global climate chaos, which is contrary to El Nino and always occurs after El Nino.
La Nina is defined by meteorology and oceanography as a phenomenon of continuous abnormal cooling of the sea water in the eastern and central part of the equatorial Pacific Ocean (the surface temperature of sea water is 0.5 ℃ lower than the average climate value and lasts for more than 6 months). The southeast trade wind blows the sea water heated by the sun to the west of the Pacific Ocean, causing the sea level in the west to increase by nearly 60 cm compared with that in the East. The temperature of the sea water in the West increases, the pressure drops, and the humid air accumulates to form typhoons and tropical storms. The bottom sea water in the East turns up, causing the sea water in the East Pacific to become cold.
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As the opposite, El Nino and La Nina are the abnormal manifestations of the alternation of cold and warm sea water temperature in the central and eastern equatorial Pacific Ocean. It’s not surprising that La Nina follows El Nino, just as El Nino follows La Nina. However, according to the records since 1950, the frequency of El Nino is higher than that of La Nina. Under the background of global warming, the frequency of La Nina phenomenon tends to slow down, the intensity becomes weaker, and it obviously declines, but it still does not disappear.
Influence of abnormal climate in production area
The impact of La Nina phenomenon is: China is characterized by cold winter and heat, drought in the South and waterlogging in the north; the southwest of the United States and the West Bank of South America have become very dry; the eastern part of Australia and the northeast of Brazil have more rainfall; the south of Thailand, Malaysia, Indonesia and the Philippines and other Southeast Asian regions have experienced floods; the west coast and southeast coast of Africa, Japan and the Korean Peninsula have experienced floods It is extremely cold in North Asia.
The excessive rainfall and flood disasters in the main production areas of Southeast Asia will hinder the tapping operation in a short time, greatly affect the output of natural rubber raw materials, and lead to the hype market with low supply in peak season. However, rubber is a tropical tree originated from the Amazon rainforest, and its biological characteristics make it extremely waterlogging resistant in rainy season. History has proved that floods can not destroy rubber production capacity. La Nina brings more precipitation to Southeast Asia, but it is conducive to water storage and moisture conservation of rubber forest, alleviates the soil hardening caused by drought in the early stage, and makes the release of rubber raw materials more smoothly in the new round of cutting season in June next year.
Proof and falsification of sand table deduction
Putting aside the fundamentals, the theory of technical analysis holds that history will repeat itself: on the one hand, it is an irresistible cycle of natural laws; on the other hand, it is human nature, psychology and market behavior. According to the observation of rubber production in Thailand, this phenomenon is reflected in the long-term trend in the coming year. The roller coaster market will rise first and then fall. It remains to be seen whether the trend of natural rubber similar to that in 2017 can be repeated. However, considering that La Nina phenomenon is declining, it is doubtful whether this cycle can push the rubber price to the peak at that time.
In recent years, the natural rubber fundamentals have been in the awkward situation of strong supply, weak demand and high inventory. The trend of natural rubber has been in the bottom form for a long time. In the process of building the bottom, the market’s expectation of the relationship between supply and demand is fully reflected in the price. From the global natural rubber supply and demand balance table, the overall situation is in the transition from oversupply to rebalancing.
The natural production law of natural rubber determines that 8-10 years is an industry economic cycle, which is like a fate that cannot be avoided for the market. In 2010, the record high of rubber price triggered the planting boom in Southeast Asia, and then the recent big bear market opened in 2011. Although there is no outbreak of epidemic in the world in 2019, the supply cycle of the main production areas reaches the peak, and the sales volume of the automobile market in the downward cycle increases negatively, which is exactly the time when the natural rubber supply and demand relationship deviates from the balance farthest. This proves once again that even major events with global influence can hardly change the inherent operation law of the industry cycle itself.
In the previous year’s report, we assumed that the period from 2019 to 2020 was around the arrival of the bull bear inflection point. The outbreak of the epidemic aggravated the imbalance of supply and demand in the rubber industry, stretching the time axis even longer. The so-called inflection point is not a certain time or price node, which can only be confirmed by reviewing the history. Now it seems that this conclusion is valid. Natural rubber has gone out of the dark.
Rubber, as one of the four strategic materials, is generally positively correlated with global economic growth. Excluding the factors of financial attributes and risk sentiment, only when the supply-demand relationship turns into a tight balance stage and the macroeconomic and meso industry cycles form positive resonance, can we confirm the arrival of the main trend reversal and upward trend of rubber, which will leave us a huge space for imagination.
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