Major Reasons Behind The Drop In Natural Rubber Market Recently

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The global natural rubber price forecast is governed by a raised global demand, an increased case of production, and an evident case of the supply-demand gap. While the developing markets are increasing their consumer base for natural rubber, oversupply and expensive tariffs are causing rubber prices to drop. Unlike many other commodities that have observed a rise in demand in recent times, the selling price of domestic natural rubber has been experiencing a decrease in price. When studying the reasons behind the apparently weakened prices for natural rubber, the most intuitive and obvious reason is that either the market demand must be weak or the end-user product would be oversupplied from the sources.

The demand for natural rubber has been distinctly identified in the automotive sector. The automotive sector uses natural rubber in the manufacture of tires and other safety gadgets, prices of which are calculated to have dropped after the inclusion of Gross Domestic Tax in various end-user consumer countries.

The Chinese Conundrum Affecting The Global Natural Rubber Industry

In order to best understand the global scenario of the natural rubber market, it is recommended to keep the Chinese natural rubber economy aside. China is currently a significant contributor to the supply of natural rubber in the global market. Chinese giants such as SHFE are producing natural rubber derivatives and using them in a variety of consumer goods. There is an excessive demand in the Chinese domestic market which leaves a considerably small proportion of natural rubber meant for exports.

Additionally, it is predicted that the Chinese tire production will be slowing down dramatically due to the escalating trade skirmishes between China and its key markets in the Western countries.  China has a strong concentration of old tire plants in the Shandong region, which has usually faced little competition due to its progressive and technology-driven research and development wing. Such old plants have conventionally enjoyed high export revenue from the Asian Pacific and American market.

The emergence of trade barriers along with some of the export-designated quantities that actively compete in the local market has led to a build-up of tire inventory in the Chinese mainland.

Core Reasons Why There Has Been An Apparent Decrease In The Natural Rubber Market

There has been an increase in the demand from the emerging markets in spite of a notable fall in demand in the developed nations. An increase in demand for biofuels has also led farmers to produce farm yields that lead to biofuel production and not the production of natural rubber producing crops. Additionally, the natural rubber prices have been significantly low in the past decade which has compelled the investors and manufacturers to pay less attention to primary commodities that use natural rubber as an important ingredient.

Farmers have a history of having faced unfavorable weather conditions that have led to a decreased production potential for agricultural commodities that helped in natural rubber production. There has been a significant depreciation of the US dollar, which led to a decrease in production costs in various other countries. Countries which are trade partners with America in the natural rubber market have benefitted against the depreciating US dollar and this caused the market prices of natural rubber to drop by some margin. The US exports also increased which resulted in supply excess in developing countries that were in trade consignments with the US.

Lastly, the speculative activity among natural rubber investors has brought down the prices of natural rubber to a large extent because of the predictions made against the growth of this industry. Betting on a decrease in the future prices of a commodity has a serious impact on the interest on bonds, equity prices and the flow of dividends.

As a big competitor to the natural rubber market is the market for synthetic rubber. The latter is relatively cheaper, its feedstock is procured much easily and it can easily substitute natural rubber. With technological advancements and a heightened global population, the market of natural rubber is getting taken over by the market of synthetic rubber. Farmers are employing farming techniques that cater to edible cash crops such as wheat, sugarcane or palm plantations. This is discouraging the natural rubber industries to keep the prices low in order to maintain their market size and consumer loyalty.

It is imperative to realize that the global natural rubber market is facing many winds of change. The lasting effect of decreased prices, agronomic differentials, a rise in the standard of living and trade barriers put by changing governmental policies may be identified as factors that have a direct influence on the market. It is highly recommended for industry players to develop alternative pathways to increase the application of natural rubber to make sure the industry has sustainability.

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