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Rubber finally "live" over a generation of "gum" take off?

Release time:

2018-09-28

Rubber finally "live" over a generation of "gum" take off?

Yesterday, the futures daily reporter rubber ring friends have lamented in the circle of friends: rubber finally "live" over. This stems from a sharp rise in rubber futures prices in the afternoon. On the afternoon of the 21st, funds entered the market in a large amount to do more Shanghai glue. As of the time of publication, RU1901 had increased its position by nearly 40000 hands, causing RU1901 main contract to rise and close at 12650 yuan/ton with a 6.98 increase. In addition, RU1905, RU1908 and other related contracts also rose sharply. Earlier, Monday's RU1901 contract closed at 11915 yuan/ton with a 1.62 per cent increase, ending last week's four consecutive days. Yesterday's trading limit gave rubber and industry insiders a shot in the arm that has been falling all the way this year ".

A number of industry insiders interviewed by the Futures Daily reporter said that yesterday's Shanghai rubber trading limit was mainly due to floods in Kerala, southern India, which triggered the market's concern about the damage to rubber plantations leading to production cuts.

Kerala Chief Minister Vijayan wrote on social media "Twitter" that Kerala has suffered "severe floods once in a century" this year. Since the end of May and the beginning of June, 324 people have been killed. It is understood that the rubber production in Kerala, India accounts for 70% of India's total. The local rubber farmers mainly grow rubber and are the traditional main rubber producing areas. The floods in India's main producing areas are expected to have a serious impact on local rubber production. India is the world's third largest rubber consumer, eye-catching performance in emerging countries, rubber consumption also continued to grow accordingly, the impact of the floods or lead to a decline in domestic production to create a gap, the future increase in imports.

A generation of "gum", this take off?

"Continuous rainfall in India's main producing areas has caused flood disasters, and there is currently no information on rubber tree disasters; if the subsequent January-February post-disaster reconstruction affects cutting, it is expected to reduce production by 10-150000 tons." Everbright futures researcher Peng Cheng told the Futures Daily reporter. According to the analysis of CITIC Futures Research Department, Kerala State in southern India suffered a major flood, which is initially estimated to affect about 100000 tons of natural rubber production. The reduction in India's domestic production will lead to an increase in imports to Southeast Asia, which will affect exports to China and, in turn, force domestic inventory depletion. Although the proportion of 100000 tons is not large, it may still become the subject of long-term capital speculation in the later period. Chen Dong, a researcher at Baocheng Futures, also believes that the rubber intraday limit was due to the floods in Kerala, southern India, which triggered the market's concern about the damage to rubber plantations leading to production cuts.

In the view of Zhao Honghu, chief analyst of the Investment and Research Department of Yide Futures Industry, the current price of rubber has reached an absolute low level and has strong support. Under the influence of the overall commodity rising atmosphere, bottom-hunting funds are ready to move. This afternoon, there was a large outflow of funds from the black and chemical sectors. Rubber quickly increased its positions. Contract 01 increased its positions to more than 30000 hands. The inflow of funds on the same day ranked first in commodities. It can be seen that this rise is the pull of funds.

In addition, according to Peng Cheng, the recent news about the fundamentals of natural rubber is that on August 20, the Chinese government and the Malaysian government issued a joint statement and signed a series of cooperation documents, including the ''Hainan Provincial Land Reclamation Administration and the Malaysian Rubber Bureau on Rubber. Memorandum of Understanding on Asphalt Pavement Technology and Tipping Automation Technology and Commercial Cooperation. "This move is expected to increase the import of natural rubber to Malaysia and the subsequent application." Peng Cheng told the Futures Daily reporter.

According to the memorandum, the two parties will conduct talent exchanges and cooperation in the field of scientific research to meet the needs of the rubber industry; share and exchange relevant information in training, scientific research innovation and commercialization; in the future, the two parties will cooperate in the field of modified rubber asphalt road technology and intelligent rubber tapping equipment. The commercialization is the responsibility of Hainan Natural Rubber Industry Group Co., Ltd. Yang Sitao, chairman of Hainan Agricultural Reclamation Investment Holding Group Co., Ltd., said that Hainan Agricultural Reclamation will take the signing of the memorandum of understanding as an opportunity to actively implement the "going out" strategy, participate in the national "Belt and Road Initiative" initiative, and strengthen cooperation with all parties in Malaysia in the research and development and application of natural rubber products and natural rubber trade, so as to promote Hainan Agricultural Reclamation to deepen supply-side structural reform and adjust the industrial structure, strengthen the strength of Hainan's agricultural reclamation.

"But from the actual use point of view, the first is the technical difficulties to overcome, the development of the new formula to the test and promotion of the long time required, the current asphalt modification technology mostly uses SBS modification, far water difficult to quench the near thirst, the successful development of rubber modified asphalt by then or rubber has changed the supply and demand structure ushered in a bull market. In addition, the emerging modified rubber asphalt is currently mostly reclaimed rubber. China has a large annual output of reclaimed rubber (4.6 million tons of reclaimed rubber in 2016) and a low price (the current price is only less than 3000 yuan). Natural rubber has no competitive advantage compared with reclaimed rubber. Therefore, at present, the use of natural rubber modified asphalt, or it is too early." Zhao Honghu said.

Demand is still in the off-season

In fact, in order to curb the continued downturn in rubber prices, many rubber-producing countries have jointly introduced measures to restrict exports and reduce rubber plantations, but they still cannot form an immediate boost in the short term. According to Chen Dong, currently in the background of the rubber production season, the pressure on the supply of natural rubber is still obvious. According to data from the International Rubber Organization (IRSG), in June, Thailand's natural rubber production increased 3.3 percent year-on-year to 345000 tons; Indonesia increased 3 percent year-on-year and 2 percent month-on-month; Vietnam increased 12.5 percent month-on-month; Malaysia increased 4.3 percent month-on-month; only India fell 15.6 percent year-on-year and 25.5 percent month-on-month. The total output of the above five major rubber-producing countries increased by 1.2 year-on-year. In the first six months of this year, Thailand's gum production rose 5.8 per cent year-on-year, Vietnam's 8.7 per cent, and only Indonesia and Malaysia fell 11.2 per cent and 2.4 per cent respectively.

In addition, because it is still in the end consumer market off-season, so the car market production and sales performance is not good. According to the July auto production and sales data released by the China Automobile Association, in July 2018, 2.0428 million cars were produced, down 10.78 percent from the previous month and 0.66 percent from the same period last year; 1.8891 million cars were sold, down 16.91 percent from the previous month and 4.02 percent from the same period last year. Among them, 1.7253 million passenger cars were produced, down 10.64 per cent from the previous month and 1.90 per cent from the same period last year, while 1.5895 million were sold, down 15.19 per cent from the previous month and 5.30 per cent from the same period last year. In terms of auto dealer inventory, although the auto dealer inventory warning index was 53.9 in July, a decrease of 5.3 percentage points from the previous month, the index was above the warning line.

In addition, according to the reporter's understanding, under the influence of Typhoon No. 18 "Wimbia", there have been torrential rains to torrential rains in most parts of Shandong recently, and local torrential rains. From 17:00 on the 17th to 14:00 on the 20th, precipitation generally occurred in the province, with an average precipitation of 135.5mm. Shandong, as a major tire production province in China, Dongying, Weifang and other tire companies are in severely affected areas. It is reported that most tire enterprises have suspended the operation of tire equipment due to serious water accumulation in the plant area or damage to its power plant equipment. The resumption time is temporarily uncertain. Many manufacturers expect to resume production in at least a week, while others say it will take at least half a month. Between the early start of the high-level operation, the current tire enterprise inventory is relatively sufficient. However, with the passage of time, the late does not rule out the occurrence of some specifications and models out of stock. At the same time, the reporter learned that there was no obvious fluctuation in the start-up of tire enterprises outside Shandong. At the beginning of the month, the start-up of tire enterprises that had stopped for maintenance was normal, and there was no new adjustment in the sales policy.

Against the backdrop of poor performance on the demand side, domestic gum social dominant inventories continued to rise. According to statistics, as of July 31, 2018, rubber inventory in Qingdao Free Trade Zone continued to climb, with total inventory increasing by about 3.05 to 206200 tons, of which natural rubber inventory rose by 1.66 to 79800 tons; synthetic rubber inventory rose by 4.07 to 122700 tons; composite rubber inventory remained stable at 3700 tons. The increase in inventory is mainly driven by natural rubber and synthetic rubber inventory, especially the increase in synthetic rubber inventory is more obvious.

It is not uncommon in the futures market for the magnificent rubber market to interpret "30 years of Hedong, 30 years of Hexi". Each industry also has a price "cycle" that conforms to its industrial characteristics ". But for rubber, its price fluctuations in this market is particularly magnificent, the downturn is also particularly long. In fact, rubber has entered a long period of decline since 2011. In the past seven years, the price of natural rubber has continued to fall from a high of 40000 yuan/ton, even falling below 10000 yuan/ton at the beginning of 2016. The rebound in late 2016 and early 2017 is not the beginning of a new bull market. The price of natural rubber continues to fall from the price of 20000 yuan/ton in early 2017. Following the Shanghai rubber deep dive in June, natural rubber launched nearly 2 months of low oscillation market. According to statistics, since 2018, the main contract of natural rubber has fallen by more than 11%. Wenhua Finance's rubber index also fell to 12175 yuan/ton from 17895 yuan/ton at the beginning of the year, a drop of 32%.

A generation of "gum", this take off?

In fact, one of the most prominent features of the natural rubber market in 2018 is that prices have been falling all the way and continue to hit new lows. Although the main producing countries repeatedly implemented a series of policies to stimulate rubber prices, such as reducing production and limiting exports, but still failed to curb the pace of decline in the price of rubber. The basis arbitrage opportunities brought about by the high water rise in the far month have led to increasing imports and relatively high inventories. The escalation of trade frictions between China and the United States has aggravated the concerns of the industry about the export of tires to the United States, thus affecting the consumption of natural rubber by enterprises, and the market's bearish sentiment has deepened. In addition, the US dollar continues to rise, the global financial market turmoil is expected to heat up, and the commodity market is under overall pressure. There is no doubt that the continued downturn in the rubber market is even worse. Although the current price is already at the bottom, the downward space is difficult to continue to enlarge, but in the industry as a whole strong supply and weak demand, the lack of favorable external environment, it is difficult to get out of the weak pattern. Yesterday's intraday trading limit may also be just a short-term emotional release, which may not be sustainable.

Industry insiders said that the strong rise of Shanghai glue yesterday was mainly reflected in the driving effect of funds and emotions. Although the fundamentals are boosted by the floods in the main rubber producing area of Kerala, India, rubber is expected to reduce production and increase imports and Indonesian deciduous disease and other news, boosting the market to rebound further, but the support for the market is limited.

Peng Cheng said that in terms of the spread between futures and cash prices, Shanghai glue led the decline last Thursday due to systemic risks, but the spot after-hours was relatively resistant to falling. In recent months, RU1809 mixed glue was about 300 yuan/ton, with limited room for further decline. "Generally speaking, today's Shanghai rubber rose faster, funds take the initiative to enter the market to do more, it is estimated that there will be a rise, then let the bullet fly for a while. But in fact, the fundamentals of the domestic industrial chain marginal did not occur more improvement, it is not recommended to follow the rise in the bottom." Peng Cheng said. (This article only represents the author's personal point of view, and operates accordingly at his own risk)

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