Expect a breakout as rubber consolidates

2020 marked the end of an over-supply situation for the natural rubber market.

Global production of natural rubber increased annually from 12.5 million tonnes in 2016 to 13.8 million tonnes in 2019. This caused rubber prices to collapse from a high of 250 US cents/kg in January 2017 and remain pressured below 160 US cents/kg since 2018, as seen from the most liquid month of SGX TSR20 rubber futures (rolling third contract month). With more than 80 per cent of natural rubber going into the production of tyres, the market saw continued selloff from the Covid-19 market crash. Reports of a sharp drop in global economic activity and car sales pushed rubber prices to a low of 104 US cents/kg in February 2020.

Since then, the rubber market turned for the better as China, being the top rubber consumer, experienced a recovery in the handling of Covid-19 as well as its economic activity. Improved demand was also met with deteriorating supply as global natural rubber production fell 6.5 per cent year-on-year to 12.8 million tonnes in 2020. This prompted rubber prices to reverse its three-year downtrend.