Monthly report: supply and demand

DEMAND EVOLUTION

Industrial activity in China fell significantly in July according to preliminary indicators (PMI). This time, there was agreement between both the official indicator and the private one published by the Caixin group, which performed significantly below expectations.

The new development was the contraction of orders for new exports. The real estate market also continues to decline despite the government's recent bailout efforts. Home sales fell 19% year-on-year in July, accelerating the deterioration compared to 17% in June.

These news worsens the outlook for the second quarter: GDP grew by 4.7%, failing to reach the stipulated growth target of 5%.

The new development is that July’s measurements show a contraction in orders for new exports, which is worrying since external sales had been sustaining production amidst weak domestic consumption.

If production cannot be directed abroad, China’s overcapacity problem could worsen.

Toward the end of July and the beginning of August, this was offset by a deterioration in production conditions. The supply of natural rubber had been steadily improving since June, but as we have mentioned, remains at historically low levels. The weather favored recovery and led to a drop in prices until mid-month. However, in recent weeks, supply was interrupted by heavy rains in Southeast Asia. As a result, prices rebounded slightly.

In the rest of the world, the economy appears more stable. However, the recent news of rising unemployment in the United States (up 0.2 percentage points to a rate of 4.3%, the highest level since October 2021) has rekindled fears of a recession among some analysts. The Federal Reserve’s upcoming decisions on interest rates will be crucial for the economic future.

SUPPLY EVOLUTION

During May and June, there was a marked recovery in the supply of natural rubber, moving past the April low. However, as can be seen in the estimates, we are still below the values of recent years.

Additionally, in the first two weeks of August, heavy rains were observed in many regions of Asia, disrupting production.

As the main producer, the largest impact comes from interruptions in Thailand. Its production fell 13.4% in the first half of the year, and the recovery is taking longer than expected.

However, the most striking situation is in India. In this country, climatic problems have compounded an already critical situation due to consistently low yields. With production close to half of expectations and limited logistical capacity for imports, India is facing a shortage that has distorted the price of latex in this market, which is currently trading well above that in other countries. We expect this to lead to a sharp increase in imports and drive prices up in the coming weeks.