Rubber futures hit nine-year high as over 60 tyre makers issue price-rise letters

Rubber prices have risen steadily this year. The main rubber contract on the Shanghai Futures Exchange closed at 20,145 yuan per tonne on October 8, up more than 28% this year and at its highest level in nine years, according to reports that Yicai, IT Home, CLS and 36Kr attributed to CCTV Finance, and that China News Service also carried. Tyres are the largest downstream product of natural rubber. Since September, more than 60 tyre makers have issued over 70 price-increase letters covering all-steel, semi-steel and engineering tyres, with adjustments generally of 2% to 5%. [ 1 , 2 , 3 , 4 , 5 ]

Raw materials make up more than 70% of tyre production costs, mainly natural rubber, synthetic rubber and carbon black. Wang Xiaocai (王小彩), sales director of Shandong Huasheng Rubber Co. (山东华盛橡胶有限公司), said natural rubber has risen about 15% since the start of the year and carbon black more than 75%. Synthetic rubber and chemical auxiliaries, affected by international oil prices, have risen by about 15% to 20%, Wang said. [ 2 , 3 ]

Tyre makers have responded in several ways, according to IT Home and China News Service. They have moved from scheduling production by quarterly totals to scheduling by orders, and hedge on the futures market to lock in raw material costs in advance. Some companies have increased research spending and launched tyre models for new energy vehicles. The outlets reported that, helped by the overseas expansion of domestic new energy vehicles, the tyre industry is focusing on the high-end original equipment market to offset uncertainty over raw material costs. [ 1 , 2 , 3 , 4 , 5 ]

China News Service quoted industry insiders as saying the rise results from three factors: the industry cycle, a weather premium and macro funding conditions. Growth in the area of rubber trees being tapped worldwide has slowed and supply has entered a contraction cycle; above-normal rainfall in several parts of Southeast Asia has affected tapping days, and the market has reacted early to expected lower output; and funds have flowed into commodities such as rubber amid expectations of loose global liquidity, amplifying price swings. The insiders said rubber imports and domestic output have not fallen significantly and that the price rise mainly reflects expectations. [ 3 ]

China News Service also reported on the wider supply chain. China's rubber plantations cover about 17 million mu, more than 27% of it in Xishuangbanna, Yunnan. Rubber farmer Yang Qinghua (杨清华) said he taps about 600 trees a day and his daily income has risen from just over 300 yuan in previous years to more than 500 yuan. The head of a Yunnan rubber processing company said plant utilisation has recovered to about 70%. In Qingdao, which the outlet called China's largest natural rubber trading hub, Fu Xinxiang (付新祥), head of a rubber futures delivery warehouse, said inventory turnover has shortened from half a year to about three months. Downstream tyre makers' purchases have remained broadly stable, and some lock in supplies early, the outlet reported. [ 3 ]