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RUBBER SEASONAL
REPORT
Commodity Exchange Strategy
Rubber TOCOM Buy in the range ¥260-275 targeting
¥325 then ¥380 with stop loss of ¥230
Rubber NMCE Buy at `16200-16400 TP `17800 then
`19000 with stop loss at `14500
29th September, 2010
RUBBER- Seasonal Report Introduction
Naturally, rubber is produced by the process of tapping the plant called Hevea Brasiliensis. These plants
generally have 32 years of economic life but they may live up to 100 years or even more. The plantation
would start yielding from 6th year onwards. The natural rubber tapped is processed to convert it into a
storable and marketable form.
Rubber trees takes 5-10 years to achieve its maturity (tapping) depending upon climatic conditions and crop
management practices. Generally, rubber trees are tapped about once in every two days (each time yielding
about 50 g of latex). When the bark of the tree is tapped, thin slivers of bark are excised; the latex exudes from
the wound and drips into a cup. During winter (lasting for 4-6 weeks), the leaves of the tree die and fall off
and new leaves are formed. The metabolism of the tree and the latex production are substantially affected.
Accordingly, the rubber production fluctuates between months and it is normally low during the rainy
season. These seasonal variations are important factors influencing the market.
The life-cycle of the rubber tree
Source: UNCTAD secretariat
Rubber grades
The most important forms in which NR is processed and marketed are the following
Sheets, Crepes, Block rubber and Preserved Latex Concentrates RSS (Ribbed Smoked Sheets) 1X, 1, 2, 3, 4, 5 Technically Specified Rubber (TSR) - ISNR (Indian Standard Natural Rubber) 5, ISNR 10, ISNR 20 and
ISNR 50 etc. TSR production in India is about 10 % vis a vis 70 % in Indonesia & Malaysia 72,880 MTs of Natural rubber have been physically delivered by NMCE till July
Figure 1: Sector wise usage of natural rubber
Source: www.anrpc.org, and KCTL Research
Tyre industry is the largest user of natural rubber accounting for 55% of world consumption. Other major
users are Latex and Engineering Product (20%), Footwear industry (5%).
World Scenario
Thailand, Indonesia, India, China, Malaysia, Vietnam are the major producers of rubber. The global production
has been hovering between 6-9 million tons with the output topping 8.8 million tons in 2009. Global natural
rubber consumption is 7.9 million tons in 2009, of which 3.9 million tons was consumed in India and China
alone. Around 50-60 % of the global rubber production is used by the tyre manufacturing sector. In this
sector, natural or synthetic rubber cannot be used individually and has to be blended.
Table 1: Quarterly rubber production growth in major producing countries (% Change)
Country Q1 Q2 Q3 Q4 Year
Thailand 24.5 2.7 -3.9 - 3.5
Indonesia 17 2.5 3.2 - 6.2
Malaysia 48.3 -12.4 16.6 7.2 16.7
India 6.2 4.2 11.6 6.4 7.2
Vietnam -26.8 14.6 18.2 7.4 8.3
Figure 2: Major natural rubber producing countries
Source: www.anrpc.org, and KCTL Research
Association of Natural Rubber Producing Countries (ANRPC) has Cambodia, India, China, Indonesia, Malaysia,
Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand and Vietnam as its members. The association
represents 94% of the total rubber-growing area in the world. Among the major producing nations, Thailand
is having a largest share of 35% followed by Indonesia (26%), Malaysia (12%) and India (9%).
Thailand
Thailand is the world’s largest producer and exporter of natural rubber. The area and production of rubber
has been increasing over the years. The natural rubber production in Thailand during 2010 is estimated
around 3275 thousand tons, which is 3.5% higher than last year.
Figure 3: Area, Production and Yield of NR—Thailand
Source: www.anrpc.org, and KCTL Research
Effective replanting policies and economic incentives fundamentally explain the better performance of
Thailand, where government intervention in the rubber sector has been extensive.
Table 2: Natural Rubber Balance Sheet—Thailand (in ‘000 tons)
Year Opening Stocks
Production Import Total Supply
Domestic Consumption
Export Closing Stocks
Total Demand
2004 202 2984 2 3188 318 2637 233 3188
2005 233 2937 2 3172 336 2632 204 3172
2006 204 3137 2 3343 321 2772 250 3343
2007 250 3057 1 3308 374 2704 230 3308
2008 230 3090 2 3322 395 2675 252 3322
2009 252 3164 5 3421 401 2726 294 3421
2010 294 3218 3 3515 412 2735 368 3515
Source: www.anrpc.org, and KCTL Research
Natural rubber consumption in Thailand has increased by 30% between 2004 and 2010 while production has
increased by 10%. The country exports 75-80% of its production and rest is consumed by local industries.
Natural rubber production in 2010 is likely to increase by 2% to 3218 thousand tons, while domestic
consumption is likely to increase by 3% to 412 thousand tons. However, exports are increasing by a marginal
amount.
Indonesia
Indonesia ranks second in world natural rubber production and export. The country has witnessed a constant
growth in output during 2003 to 2007. However, it started declining from 2007 onwards on poor crop
management practices. Indonesia has the largest acreage of rubber plantation in the world but yield level is
lower, hence, the country is in second position. The acreage of Indonesia in 2010 is 3.44 million hectares
against 2.6 million hectares of Thailand, which is the largest producer in the world.
Figure 4: Area, Production and Yield of NR—Indonesia
Source: www.anrpc.org, and KCTL Research
Table 3: Natural Rubber Balance Sheet—Indonesia (in ‘000 tons)
Year Opening Stocks
Production Import Total Supply
Consumption Export Closing Stocks
Total Demand
2004 23 2066 8 2097 197 1875 25 2097
2005 25 2271 7 2303 222 2024 57 2303
2006 57 2638 7 2702 355 2287 60 2702
2007 60 2755 10 2825 392 2407 26 2825
2008 26 2751 13 2790 415 2295 80 2790
2009 80 2440 13 2533 422 1991 120 2533
2010 120 2592 8 2720 439 2200 81 2720
Source: www.anrpc.org, and KCTL Research
Domestic consumption of natural rubber in Indonesia more than doubled between 2004 and 2010 while
supply increased by just 17%. Production has been growing at a CAGR of 3.14% since 2004 and domestic
usage is increasing by 14.72% while exports are growing at just 1.62%. This is indicating that the country’s
local consumption is growing very fast than exports. It exports around 85% of total output and remaining is
consumed by local industries.
Malaysia
Malaysia is the third largest producer and exporter of natural rubber in the world. Natural Rubber production
and area have shown a significant growth till 2006-2007. The output witnessed a fall for three consecutive
years on unfavorable weather condition. Economic slowdown started in late 2007 also impacted the
production. Shift in land to palm plantation in Malaysia was also one of the reasons for decline in output.
Figure 5: Area, Production and Yield of NR—Malaysia
Source: www.anrpc.org, and KCTL Research
Table 4: Natural Rubber Balance Sheet—Malaysia (in ‘000 tons)
Year Opening Stocks
Production Import Total Supply
Consumption Export Closing Stocks
Total Demand
2004 163 1169 426 1758 454 1109 195 1758
2005 195 1126 462 1783 491 1128 164 1783
2006 164 1284 512 1960 638 1134 188 1960
2007 188 1200 558 1946 689 1104 153 1946
2008 153 1072 523 1748 568 1024 156 1748
2009 156 857 748 1761 687 912 162 1761
2010 162 1000 766 1928 637 1123 168 1928
Source: www.anrpc.org, and KCTL Research
In 2009, the Malaysian rubber production declined substantially by 20%, which made the country to import
huge quantity of rubber during the year. The possible reasons for decline in production and rise in exports
are:
The rubber processing industries were under utilized due to less availability of rubber
The domestic consumption data says it has created apprehension of rubber shortage in the country
that year as the consumption was almost highest ever in last 7 years
Unfavorable weather condition in the country had affected the production badly
The Malaysian rubber production may not increase in coming years due to shift in acreage to palm
plantation
Vietnam
Vietnam is another big producer and exporter of natutal rubber in world. Area and production in Vietnam has
been increasing at faster speed than any other major producing country. The natural rubber production in
Vietnam during 2010 is estimated around 770 thousand tons, which is 8.3% higher than last year.
Figure 6: Area, Production and Yield of NR—Malaysia
Source: www.anrpc.org, and KCTL Research
Table 5: Natural Rubber Balance Sheet—Vietnam (in ‘000 tons)
Year
Opening Stocks
Production Import Total Supply
Consumption Export Closing Stocks
Total Demand
2004 20 419 153 592 59 513 20 592
2005 29 482 141 652 69 554 29 652
2006 50 555 234 839 85 704 50 839
2007 55 606 195 856 85 716 55 856
2008 106 660 160 926 97 723 106 926
2009 122 720 144 986 120 744 122 986
2010 92 770 133 995 125 780 90 995
Source: www.anrpc.org, and KCTL Research
Vietnam’s natural production is increasing at a CAGR of 10.52%, domestic consumption at 13.28% and
exports at 7%. The consumption is growing much faster than production. Output in 2010 is expected to
increase by 7% Y/Y to 770 thousand tons while consumption is likely to increase by 4.17% to 125 tons. The
nation exports around 80% of its production.
India
India is the 4th largest Natural Rubber producing country after Thailand, Indonesia and Malaysia. The country
produces almost 9% of the world’s total natural rubber. China is largest consumer of natural rubber in the
world. Last year, India ranked second in consumption surpassing US and Japan.
India’s natural rubber production declined by 3.8% in 2009 to 831 thousand tons due to unfavorable weather
condition and on labor problem at the time of tapping. However, consumption rose by 6.8% to 930 thousand
tons. The peak season for harvesting Rubber in India is from October to January, while the lean period is
during monsoon.
Figure 7: Area, Production and Yield of NR—India
Source: www.anrpc.org, and KCTL Research
Kerala is the single largest rubber producing state in India accounting for 91% of total production. Kerala and
Tamil Nadu are considered to be the traditional rubber growing regions in the country. In recent years,
among non-traditional region, Tripura has become one of the most preferred states for rubber plantation.
In India, government incentives have stimulated widespread replanting of improved varieties, which has
steadily increased yields. There has also been large investment in supportive infrastructures, including
research.
Rubber trade in India
India’s rubber consumption is not commensurate with production. Domestic production meets 92% of the
consumption and remaining quantity is being imported.
During 2010, the import of NR decreased to 83,000 Tons from 157,000 Tons last year. Export increased to
51,000 Tons from 16,000 Tons last year. The total NR stocks at the end of May 2010 were 230,000 Tons, of
which majority was lying with grower and dealers & processors. The following graph depicts a cyclical
pattern in rubber export-import in India.
Figure 8: India: Natural rubber import & export trend
Source: www.anrpc.org, and KCTL Research
Table 6: Natural Rubber Balance Sheet—India (in ‘000 tons)
Year Opening Stocks
Production Import Total Supply
Consumption Export Closing Stocks
Total Demand
2004 123 743 73 939 745 71 123 939
2005 123 772 71 966 789 60 117 966
2006 117 861 50 1028 815 71 142 1028
2007 142 811 119 1072 851 29 192 1072
2008 192 881 93 1166 881 77 208 1166
2009 208 820 157 1185 905 16 264 1185
2010 264 895 83 1242 967 51 224 1242
Source: www.anrpc.org, and KCTL Research
For 2010, India’s natural rubber production is projected to increase by 9% to 895 thousand tons while
consumption is likely to increase by 7% to 967 tons. Imports are projected to decline due to varying taxes
imposed by Indian government.
Factors affecting natural rubber Prices
1. International Natural Rubber Market supply and demand situation and the main rubber producing
countries export Quotes
In the international market, complete control over the supply of natural rubber is in the hands of Thailand,
Malaysia and Indonesia. Import of natural rubber by US and Japan will have a greater influence on the prices.
2. The international market transactions quotes
Natural rubber has become an international commodity, the futures trading in the Far East and Southeast
Asia a prime position. At present, the futures trading in Natural Rubber is available in Tokyo Commodity
Exchange (TOCOM), Japan's Kobe Rubber Exchange (KOBE), Singapore RAS Commodity Exchange and Kuala
Lumpur Commodity Exchange (KLCE). In which, the effects of transactions in Tokyo and Singapore, the
largest market reflect the basic dynamics of the world's rubber prices.
3. Synthetic rubber production and affect of crude oil prices
Natural and synthetic rubber can be interchanged in various usages. When price of natural rubber rises
automatically the demand for synthetic will increase. In addition, petrochemical products used for making
synthetic rubber also have an indirect effect on natural rubber prices, thus crude oil prices also have a
significant effect on prices and demand for natural rubber.
Figure 9: India: Natural rubber import & export trend
Source: www.anrpc.org, and KCTL Research
Natural rubber and Crude oil prices are highly correlated. Their prices correlation is around 0.85 which
reflects a very good relation in crude oil and rubber prices.
4. Effect of exporting countries currency on rubber prices
The appreciating currency has a negative influence on natural rubber prices. As if the currency of any country
appreciates against dollar it affects exports from that country because an appreciating currency lowers the
export value of that country. In contrast, when a natural rubber exporting country’s currency gains strength
against the dollar, it leads to rise in NR export price.
5. Influence of Yen and TOCOM Futures
The currency of exporting countries and natural rubber prices share an inverse relationship. An appreciating
yen makes yen-denominated futures rubber contracts less attractive and thereby depresses TOCOM rubber
futures. As depicted in below graph when yen gains strength against dollar rubber prices start declining and
vice versa.
Figure 10: TOCOM rubber futures vs. JPY
Source: www.anrpc.org, and KCTL Research
6. Demand from end users like tyre and related automobile industry
The main users of natural rubber are tyre and auto industry, which directly affect the degree of natural
rubber market. Automobile industry is the biggest consumer of natural rubber, so the development of
automobile industry and policy will affect the demand for tyres and influence the demand for natural rubber.
7. Natural factors: seasonal changes and climate change
Latex is generally collected from rubber trees after 5-7 years of the plantation and economic age of rubber
trees is generally 25-30 years. Rubber trees need high-temperature wet environment, an average annual
temperature of 26-32oC and average annual rainfall above 2000mm for its growth. This type of climate is
mostly concentrated in Southeast Asia.
8. Policy factors
Any change in natural rubber production, import and export policy will affect the natural rubber price trend.
Rubber price seasonality
We have depicted the seasonality of Rubber price movement in the TOCOM, which more or less reflects the
movement witnessed across the globe. The Seasonality Index is prepared by considering data for the last
twenty years. Clearly, as the figure indicates, October-November onwards rubber prices start moving higher
and reach their peak in May. This is another factor which supports the rubber prices to trade higher from
here onwards.
Figure 11: Natural rubber seasonality
Source: www.anrpc.org, and KCTL Research
Fundamental Outlook (Global)
Natural Rubber prices are expected to show a bullish trend in short to medium term. The major reasons for
upward movement in prices are -
Supply Effect- Tight supply situation may lead to an upside movement in natural rubber prices. Tapping
process has hampered in many producing countries due to heavy rains during July to September. This will
lead to the lower production in Q-3 FY 11. Moreover, rubber plantations are at the end of their economic life
in many countries and large scale replantation is needed. Due to the long gestation period of rubber tree,
most of the farmers in Malaysia are shifting towards more profitable and labour saving crop i.e. Oil Palm. All
these reasons indicate supply shortage globally which may support the rubber prices.
Yen Effect- Yen touched its 15 years high of 82.6 against US dollar on Sep. 14th 2010. This means yen
appreciated against Dollar which is negative for rubber prices which have seen during early September this
year. The Japanese government intervened in the market to limit further appreciation of JPY against USD after
six year. As Japan is the export oriented country, appreciation of Japanese currency may hamper the exports.
Therefore, on September, 15 2010 Japanese Authorities sold more than 2 trillion Yen to limit the yen
appreciation. This intervention is likely to support the natural rubber prices. Japanese government has
indicated that they may further intervene on Yen to support the exports from Japan, Which in turn will give
rise to natural rubber prices.
Crude Oil Effect- Crude oil which is highly correlated with natural rubber prices is projected to trade lower
for medium term. Increasing crude oil inventory levels, slow economic growth are the major factors affecting
the crude oil prices. This may hinder the sharp rise in natural rubber prices. However, the fall in crude oil
prices may be limited due to lower dollar value which may reduce the negative impact of crude prices on
natural rubber prices.
Technical Outlook
TOCOM- Rubber: TOCOM Rubber future prices have been declining for the last four months and it took a
50% correction of the rise 93.3-472 levels. Market is finding a strong support at 282 levels, (50%
retracement) sustained trade above is likely to resume its uptrend. On the other hand, trend line support is
near 265 levels that can push the prices on to the higher side. Moving average principle suggests upside
potential as the prices are trading above the monthly medium term (45) EMA and short term (18) EMA. The
momentum indicator RSI (14) monthly is at 0.55 levels and witnessing a trend line support near 0.52 levels
suggesting upside movements.
Outlook: The key level to watch is at 265 levels and sustain above would lead the prices to trade higher. A
convincing break below 265 levels may reverse the trend. However, chart analysis does not seem to trade
lower.
Recommendation
Buy in the range ¥260-275 targeting ¥325 then ¥380 with stop loss of ¥230
Figure 12: TOCOM rubber futures price movement
Source: Bloomberg and KCTL Research
Fundamental Outlook (India)
Natural Rubber prices are expected to trade higher on Indian exchanges in short to medium term. Apart from
global factors the major reasons supporting the upward movement of prices in India are:
Domestic demand for natural rubber has grown by 8.0% annualized rate during January to July this
year. Tyre companies, which largely stayed away from the market until mid-May, actively entering
into the market for ensuring availability during the monsoon off-season
The impact of ageing of rubber trees on natural rubber supply is more prominent in India than other
producing countries. The production during January-July this year was 5% lower compared even to
the same period before two years, which indicates that supply shortage can be seen in India
Import duty for natural rubber products is levied at the rate of more than 20% which will support
the domestic prices to quote higher
Technical Outlook
NMCE- Rubber: Rubber future prices were seen trading in a consolidation band of Rs.17815-16140 levels for
the past six weeks. The view remains sideways to higher for short to medium term. On the lower side crucial
support is seen at Rs.16155 levels (Trend line supported by 23.6% retracement) sustain above is possible to
remain higher. A significant break below 16155 may lead the prices to see a correction till Rs.14160 levels
(38.2% retracement of the range 19375-5734 levels).Moreover, medium term weekly EMA (45) is showing a
strong support near Rs.15710 levels suggesting upside bias as long as it holds the same. We recommend
buying for short term.
Recommendation
Rubber NMCE: Buy at `16200-16400 TP `17800 then `19000 with stop loss at `14500
Figure 13: TOCOM rubber futures price movement
Source: Reuters and KCTL Research
RUBBER CONTRACT SPECIFICATION (NMCEIL)
Asset Code RUBBER
Product Code RUBBERF
Series Code RBRMMMYYYY
Trading System NMCE’s Derivatives Trading and Settlement System
Trading Hours Monday to Friday :10:00 am to 5:00 pm Saturday :10:00 am to 2:00 pm
Unit of Trading 1 MT
Delivery Unit 1 MT
Quotation/Base Value 100 Kgs
Tick Size Rupee 1/-
Price Band* Daily price fluctuation limit will be +/-3%. Limit on daily price fluctuation will be reckoned with reference to the pervious close price. If trade hits this price limit, trade would stop for 15 minutes, where after price would be extended by another +/-1%. No trade would be permitted during the day beyond then revised price limit of +/-4%.
Quality Specification Ribbed Smoked Sheets 4 (RSS4)
Quality Specifications as provided under Part II Section 1 of the "Green Book" as detailed below: Nothing but coagulated Rubber Sheets, properly dried and smoked can be used in making these grades:
block, cuttings, or other scrap or frothy sheets, weak, heated or burnt sheets, air dried or smooth sheets not permissible.
Slight resinous matter (rust) and slight amounts of dry mould on wrappers bale surfaces and interior
sheets, found at time of delivery will not be objected to .should "rust" or "dry mould" in an appreciable extent appear on more than 20% of the bales sampled, it shall constitute grounds for objection.
Medium size bark particles, bubbles, translucent stains, slightly over smoked rubber are permissible to the
extent shown in the sample. Oxidized spots or streaks, weak, heated, under cured, over smoked (in excess of the degree shown in the
sample), and burnt sheets are not permissible. The Rubber must be dry, firm, and free of blemishes, blisters, sand, dirty packing and all other foreign
matter other than specified above as permissible.
No. of delivery Contracts in a year Maximum 12 monthly or minimum 2 monthly contracts running concurrently.
Delivery Centers CWC Warehouses Cochin / Ernakulum (basis center), Kottayam, Calicut, Malapuram, Tricur.
Opening of Contracts Trading in any contract month will open on the 16th day of the month as per approved calendar
Due Date 15th day of the delivery months if 15th happens to be holiday then previous working day.
Closing of Contract Squaring up of positions will be permitted between 12th and 15th of delivery month. No fresh positions building will be allowed. From 12th to 15th of delivery month, seller can tender Warehouse Receipt for settlement and Warehouse Receipt will be accepted for settlement at closing price of the previous day.
Delivery Logic Compulsory Delivery
Limit on open position Client – 4,000 MT Member – 12,000 MT or 15% of total market open position in the commodity whichever is higher Near Month Limit: Client :1,250 MT Member – 5,000 MT or 15% of the total near month position in the commodity, whichever is higher
Prices Convergences at Expiry
The futures price perfectly converges with the spot price every month on the date of settlement as it ideally
should. As the expiry date of the contract approaches, the spread between the two declines and on the last
day it becomes zero.
Physical Delivery
Rubber futures attracted real hedgers and for the first time in the futures history, cooperative sector have
participant in the futures by taking delivery of rubber. Exchanges have facilitated the delivery based
transaction and buyers and sellers were satisfied from the delivery mechanism of the exchange. Backed by
warehouse receipts and having facilities of CWC warehouses, buyers may remain assure about the quality of
delivered goods while sellers remain assured by the fair value arrived through the trading platform where
number of participants agrees to a particular price at the end of each session.
To unsubscribe please mail us at [email protected] Disclaimer The report contains the opinions of the author, which are not to be construed as investment advices. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above mentioned opinions are based on the information which is believed to be accurate and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading. Commodity derivatives trading involve substantial risk. The valuation of underlying assets may fluctuate, and as a result, clients may lose entire value of their original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by or from Karvy Comrade that the reader/client will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. The Information contained in this report is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management or investment advisory services. The reports are only for information purpose and not to be construed as investment advices. For Detailed disclaimer please go to following URL’s; http://www.karvycomtrade.com/disclaimer.asp http://www.karvycomtrade.com/riskDisclaimer.asp