Rubber fell 70% in 7 years. Will the bear market last for 10 years?

Rubber prices experienced a surge in the period from 2009 to 2011, during which the increase was as high as 240%, which in turn led to a large expansion of the planting area in the producing countries, resulting in a serious oversupply. Although the international rubber futures price has risen by 16% this year, it is still 70% lower than the 2011 high, indicating that the supply side of rubber is difficult to eliminate in the short term.

A-share brokerage Hongyuan Futures Research Institute pointed out that because the growth cycle of natural rubber and the tapping cycle are long, it is impossible to adjust the output in a timely manner, which will result in a frenzied situation when the bull market is madly planted and the bear market is difficult to exit quickly.

As a special commodity, natural rubber usually starts to cut rubber after 5-7 years of planting. As the tree matures, the yield increases, and it enters the high-yield period after about 10-15 years.

David Shaw, executive director of the Tire Industry Research, which has been focusing on the rubber industry for many years, said that global rubber production will continue to exceed tire demand from 2027 to 2028, and producers may continue to face low prices for 10 years. Until the planting area begins to shrink, it will result in a sharp increase in prices.

The oversupply of rubber is difficult to change in the short term

In this regard, Shaw believes that rubber producing countries should be more cautious in controlling planting area to achieve a balance between supply and demand. If rubber producers can predict future demand in a 10-year cycle, the price can be relatively stable.

Salvatore Pinizzotto, secretary general of the International Rubber Research Organization, mentioned that for rubber farmers, the lack of other sources of income forced them to continue to produce rubber for their livelihoods at low prices, further exacerbating oversupply.

At present, Thailand is the world’s largest rubber producer, accounting for 36% of global production; China accounts for nearly 40% of global natural rubber consumption, and is the country with the largest demand, of which nearly 7 is used for tires. However, due to overcapacity, China’s tire growth rate It has fallen sharply from 20% in 2010 to 5.4% in 2017.