China's economy boosts rubber demand and revises its 2025 outlook

Against all odds, China’s economic growth forecasts are starting to be revised upward and are now approaching the government’s 5% target. Although the full impact of U.S. tariff hikes has yet to be seen, the start of the year has been so strong that several banks and rating agencies are already adjusting their projections.

Rubber demand from the Asian giant remains high, and for now, this is supporting prices—at least while the low production season continues.

As we’ve been highlighting, China’s production data has been significantly better than expected.

The year has kicked off so well that Morgan Stanley raised its economic growth forecast from 4% to 4.5%, also driven by increased investment in key sectors. It's not the only institution to revise its forecast upward—both HSBC and the Organisation for Economic Co-operation and Development (OECD) have already improved their projections. However, none of them are yet forecasting growth that reaches the government’s 5% target.

With the improvement in activity, rubber demand is also on the rise, which keeps prices elevated. Reports from ChemAnalyst indicate that the tire sector has increased production, leading to a higher volume of natural rubber purchases. This was partly influenced by stronger auto sales: after a 12% drop in January, the first two months of the year ended 1.3% above 2024 levels. The large discrepancy between January and February performance is due to the different timing of the Lunar New Year compared to last year.

Import tariffs: a mixed bag

Amid sharp criticism from the automotive sector, Donald Trump announced a 25% tariff on all imported vehicles and auto parts, effective April 3. The move will likely increase the cost of vehicles for U.S. consumers, potentially weakening demand and affecting global tire production. However, there was also some good news.

Apparently, the reciprocal tariff measure (meaning the U.S. would charge the same tariffs other countries impose on U.S. exports), announced for April 2, will—for now—be limited to just 15% of the list of countries with which the U.S. has a trade deficit.

In terms of total U.S. imports, the impact on prices and activity would still be significant, as those countries account for a large share of U.S. trade. However, with fewer retaliatory measures expected, the risk of higher tariffs on rubber imports from Brazil may ease.

Unprepared for EUDR

A recent report revealed that only one of the world's top 12 tire manufacturers has been able to prove it has a deforestation-free supply chain. The lack of transparency in the rubber supply chain is concerning, especially as the European Union Deforestation Regulation (EUDR) approaches. This regulation will require companies importing certain products to ensure they do not come from deforested land.