During the second half of 2022 and the first half of 2023, rubber prices were adjusted and remained at low levels due to weak demand in the consumer market. Rubber prices on the TOCOM exchange began to rise again in the third quarter of 2023. Specifically, rubber prices experienced six consecutive months of increase starting from August 2023, with a rise of 20%-30% for both TSR20 and RSS3 types, thanks to the strong recovery of demand in major markets such as China, India, and Thailand in the second half of 2023.

This trend continued to be evident in the first five months of 2024. Analysts attributed the sharp rise in rubber prices during the early months of this year to the impact of international oil prices – which typically fluctuate in the same direction as oil prices (although the correlation between the two commodities has decreased significantly over the past two years) – with geopolitical conflicts in the Middle East driving oil prices higher. Additionally, concerns about supply shortages later in the year due to heavy rains in Thailand also contributed to the price increase.

Moreover, there are latent concerns about supply in major producing countries such as Thailand and Indonesia, as the EU Deforestation Regulation (EUDR) is set to take effect at the end of December 2024. This regulation will ban the import of seven groups of commodities (coffee, palm oil, wood, rubber, beef, cocoa, and soybeans) into the EU if their production causes deforestation. In Thailand, in the last week of May, RSS3 sheet rubber was traded at a 12-year high of 96.66 THB/kg as consumers began seeking rubber that complies with EUDR.

A study published in the journal Nature in October 2023 revealed that more than 4 million hectares of rainforest have been lost to rubber cultivation in Southeast Asia over the past three decades. Indonesia, Thailand, Cambodia, and Malaysia are the countries with the most significant deforestation. The above regulation will pose a significant challenge to the natural rubber industry and may create new pressure on supply from 2025.

According to experts, the supply of rubber in 2024-2025 may continue to face shortages, with a global shortfall of around 600,000-800,000 tons annually, as demand grows faster than supply.

Specifically, global natural rubber consumption is expected to maintain a growth rate of 4%-6% per year, driven by the recovery of the global automobile and tire manufacturing industries, particularly in the Chinese market. This activity is also showing positive growth in Thailand and India, and it is expected to continue increasing in 2024.

However, global natural rubber supply is expected to grow at an average rate of only 1%-3% per year during this period. The area of rubber plantations in Thailand and Indonesia has continuously decreased due to rubber tree diseases and the trend of switching to other industrial crops with higher economic efficiency. Rubber harvest yields have also declined in recent years due to disease and extreme weather.

The year 2024 is forecasted to be a challenging year for rubber trees due to the transition between El Niño and La Niña phenomena, causing significant fluctuations during the peak harvesting season in Southeast Asia. Moreover, supply has already decreased significantly as farmers shifted to other industrial crops during the period of sharp declines in rubber prices in previous years.

Supply-demand forecasts often indicate mid- to long-term price outlooks, and the above-mentioned supply shortfall is expected to positively impact prices. Phu Hung Securities (PHS) assesses that TSR20 rubber prices may remain high and reach levels between $1.6-$1.8/kg, similar to the period of 2021 to the first half of 2022.

However, in the short term, it is necessary to closely monitor factors such as the USD – which has an inverse relationship with rubber prices and is currently at a high level as the Fed hesitates to cut interest rates; market expectations for the number of interest rate cuts by the Fed in 2024 have also decreased compared to the beginning of the year; the price movement of oil – which has been trending downward since April; or the economic situation in major consuming countries like China, particularly its automobile sales, which have shown signs of slowing down. With these pressures, rubber prices are likely to remain flat or under short-term downward pressure.

Rubber, Oil, and USD Price Trends (Measured via DXY)

Source: Tradingview

According to PHS, the peak rubber harvesting season falls in the period from late Q3 after the leaf-shedding season from around February to May. Therefore, producers usually focus on buying during the latter part of the year after projecting their business outlook for the following year. The second half of the year will be the key period to determine rubber price fluctuations for the next year.

Currently, domestic investors can trade RSS3 and TSR20 rubber futures contracts through the Vietnam Commodity Exchange (MXV), which is linked to leading rubber commodity exchanges such as TOCOM and SGX.

Source: Compiled