Market and product

SINGAPORE (Dow Jones)--Natural rubber's supply-and-demand fundamentals remain strong, and the market has "taken a recovery path" despite a drop in prices since the start of this month and the end of wintering, the Association of Natural Rubber Producing Countries said in a monthly report Tuesday.

"Demand for natural rubber remains strong despite woes and worries clouding expectations for global economic recovery," ANRPC said.

Natural rubber prices have dropped since the beginning of May due to the potential for global contagion from the euro-zone debt crisis and possible monetary tightening by China, and to a sharp fall in crude oil prices.

"Although the above conditions continue and crude oil (prices) stay low, the natural rubber market has taken a recovery path, supporting the view that demand-supply fundamentals remain strong even after the wintering off-season," ANRPC said.

Even though total supply of natural rubber from ANRPC members could rise 6.2% this year to 9.4 million tons, the average annual growth rate from 2007-2010 comes to just 0.8%, as rubber output stagnated or declined over the last three years.

"It follows from the above that the tightness being felt in the market, even after the wintering season, is the cumulative effect carried from 2007 onwards," the association said.

"Concerns over comfortable availability of natural rubber in the short term have (also) contributed in keeping the market sentiment positive," it said.

Preliminary estimates up to last month indicated that demand remained strong in major consumers China, India and Malaysia, the association said. In top consumer China, imports of natural and compound rubber in the January-April period rose 17.3% and 42.7%, respectively, from the first four months of last year. Compound rubber is made up mostly of natural rubber.

"It is striking to notice that these robust rates have been attained in spite of a section of the tire manufacturing industry staying away from the market, expecting a lower price after the wintering season. This means that the real demand is yet to be felt in the market," it said.

Natural rubber futures on the Tokyo Commodity Exchange are trading mostly higher Wednesday with the old benchmark October contract rising as much as 2.8% before paring gains to trade 1.6%, or Y4.4, higher at Y275.4 a kilogram at 0827 GMT. The new benchmark November contract, which opened Wednesday at Y275/kg, was trading Y1.6 lower at Y273.4/kg.

In the spot market, physical rubber prices have been mostly steady in the last week due to tight supplies, as traders report some cargo delays from major exporters Thailand, Indonesia and Malaysia. Thai ribbed smoked sheet grade-3 is being quoted around $3,700/ton, free on board, for shipment in July.

Rubber prices are expected to consolidate around current levels in the near term due to continued tight supplies of raw material in Thailand and an increase in demand due to major consumers depleting inventories, the International Rubber Consortium said in a statement Monday.

(Source: Dow Jones, By Hui Leng Tan)