Subdued rubber price reflects poor automotive sales


THE price of natural rubber (NR) is not reflective of its fundamentals, as poor global automotive production and sales led to subdued growth of the commodity.

NR is the main raw material used in products ranging from tyres, condoms and gloves manufacturing.

JF Apex Securities Bhd research analyst How Chi Hoong said the Covid-19 pandemic forced lockdown and had curtailed global vehicle sales that led to slump in the automotive industry this year.

“I believe this is mainly due to disappointing vehicle sales (which substantially consumes rubber) by top automotive-producing countries such as China.

“Major automakers reported a more than 30% drop in US sales in the second quarter, Japan dropped 23% year-on-year (YoY) in June, and Germany fell 40% YoY in June),” How told The Malaysian Reserve (TMR).

The average price of latex concentrate recorded a marginal increase of 4.6% to 432.16 sen per kg from 413.26 sen per kg in April 2020, according to Monthly Rubber Statistics Malaysia (May 2020) by the Department of Statistics Malaysia.

He added that the easing of global lockdown and gradual recovery in the global supply chain would lend the rubber industry a positive outlook, once demand for automotive returns.

“We have seen a strong rebound of other commodity prices such as copper, crude oil, soybean, and crude palm oil. The rubber prices could normalise in the coming months as well,” he added.

The monthly rubber census conducted for the reference month of May 2020 found that the implementation of the Movement Control Order (MCO) in that month still has an impact on the establishment that carries out rubber processing activities.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin in a statement said the production of NR decreased 39.2% in May 2020 to 21,044 tonnes compared to 34,616 tonnes in the previous month.

He said YoY comparison also showed a decrease of 52.7% compared to the same month in the previous year.

“The decline in the production of NR was also supported by the closing stocks in the previous month. This situation is among the remedial measures taken to address the shortage of production.

“Stocks of NR started to decline in May 2020 by 8.2% to 295,146 tonnes compared to 321,413 tonnes in April 2020,” he said.

A local industry analyst pointed out that consumption of rubber for the glove industry is small compared to other sectors like automotive and construction.

Hence, the increase in demand for latex from glove manufacturers is insufficient to negate the subdued demand from other sectors, which are currently impacted by the slow economic activity, he said.

“Local glove manufacturers have been focusing on producing more synthetic gloves instead of NR gloves. The raw material for synthetic gloves is nitrile, a derivative of oil.

“This type of glove is preferred by developed countries like the US and hence, commands a higher selling price,” the analyst, who preferred to remain anonymous, told TMR.