Production Difficulties Among Major Exporters

Continued Price Increase Linked to Weak Supply

This week, the trend observed since early August continued, with prices rising for both latex and, more markedly, natural rubber (TSR20). The weak supply, despite some positive news from smaller producers, remains the main cause of the price increase. Some market sources have linked this to China's inflation data. However, we believe that economic activity data from the Asian country does not show clear signs of recovery.

Consumer Inflation Rises in China, but Activity Data Remains Unconvincing

China's consumer price index rose by 0.5% in July, which was seen positively by some analysts, as the figure eased fears of deflation. This may have slightly driven up rubber prices due to increased speculative buying. However, overall, China's economic data is not particularly noteworthy.

The wholesale inflation index turned negative again, with a rate of -0.8%. While retail sales grew by 2.7% year-over-year, real estate investment continued to decline, with credit to the sector well below expectations. This suggests that the government's stimulus policies have not been effective.

Tire Companies Bet on Long-Term Growth

The automotive industry has been sustaining steady growth since 2023, and it is expected to continue advancing in the coming years, driving demand for tires and natural rubber (and thus putting upward pressure on prices). This is evidenced by the recent investment announcements made in recent weeks.

Zhongce Rubber (ZC) has begun construction of a new plant in Mexico. Yokohama Tires has expanded production at its Philippine plant from 1,800 to 34,000 tires daily. Linglong Tire is investing USD 650 million in a new tire plant in Serbia, aiming to produce 1.1 million tires. Bridgestone plans to spend USD 170 million to upgrade its OTR tire production facilities at its Kitakyushu plant in Fukuoka, Japan.

U.S. Inflation in Line with Expectations, Rate Cut Likely Approaching

U.S. inflation stood at 2.9% annually, breaking the 3% barrier for the first time since 2021. The decline is in line with expectations and should support a quarter-point interest rate cut, as anticipated. This could provide a slight boost to global growth and commodity demand.