Latex prices fell again this week amidst restrained demand and the already announced rebound in supply. Although they are expected to remain low in the coming weeks, there are some doubts for the medium term, as crop yields may continue to be below normal in the second half of the year.
RUBBER (TSR20, SINGAPUR)
Lower Prices Expected: How Long Will the Drop Last?
The decline is more significant than in finished products, which helps improve the margins of manufacturers, who had been unusually depressed. Prices may remain low in the short term due to favorable weather prospects, but some doubts arise for the medium term. On the one hand, the dry weather in the first half of the year will continue to affect crop yields; on the other, the overall trend is still an increase in demand for rubber products.
Supply Recovers, but Without a Bright Outlook
Recent good weather has helped recover the global supply of rubber, abruptly halting the price surge, especially in primary products, which had experienced the highest increases.
However, the poor weather conditions that have been ongoing since late last year are likely to result in slightly lower than usual yields during the peak season. This sets a floor to the price drop unless there is a reduction in demand.
Short-Term Demand: Activity Indicators in China Show Mixed Results Again
The world's largest consumer of natural rubber continues to show uneven recovery. The official PMI for June (the first official indicator of industrial activity) showed a slight decline again. This figure does not match the survey conducted by the Caixin group, which measured an expansion.
The discrepancy is due to the sectors analyzed. The official indicator has more participation from large companies associated with basic inputs such as steel and cement.
As such, it is more impacted by the decline in construction and investment in general. In contrast, the better performance of exporters boosted the other indicator.
The conclusion is that the Chinese economy continues to advance at a very uneven pace across sectors. This suggests that volatility in growth will persist, impacting natural rubber demand prospects and prices.