KUALA LUMPUR: Latex prices, which hit fresh lows in recent days, are seen to be on a downward trend in the coming months in anticipation of lower demand by major industrial users, a positive for natural rubber (NR) glove producers although other concerns linger.
Analysts said rubber prices could be stifled by lower demand due to the eurozone sovereign debt crisis, besides automotive sector supply chain disruption from the floods in Thailand. Normalising demand for rubber gloves in the absence of disease outbreaks is another factor underlying lower consumption of rubber in the coming months.
“There is a downside bias to our forecast for rubber prices,” an analyst with MIDF Amanah Investment Bank Bhd told The Edge Financial Daily.
MIDF’s forecast indicates that latex will trade at an average of RM9 a kg this year before falling to RM8.75 in 2012. An analyst said the current situation would benefit glovemakers with a higher composition of NR gloves than synthetic rubber or nitrile glovemakers. Notable players include Top Glove Corp Bhd whose portfolio comprises 81% natural rubber gloves with the balance 19% being nitrile products.
Supermax Corp Bhd has a ratio of 80:20 for natural and nitrile gloves respectively while Kossan Rubber Industries Bhd has a ratio of 55:45.
Concerns over normalising demand for gloves due to the absence of outbreaks have given rise to fears of a price war among players, which could hurt the profit margins of these companies, the analyst added.
“Buyers of rubber gloves are adopting a wait and see attitude in anticipation of rubber prices going down further,” she said. Latex makes up some 60% of glovemakers’ cost.
The analyst said that while floods in Thailand have caused supply chain disruptions for the automotive sector, the situation there has begun to recover, and this is expected to lend support to rubber prices.
OSK Research Sdn Bhd analyst Jason Yap said he expects rubber prices to decline in the long term as demand is seen to be anaemic. This is due to moves by glovemakers to increase output of nitrile products and normalising demand for gloves.
Yap also said the global automotive sector, which consumes 70% of world rubber output, encountered setbacks against a weak global economic backdrop and floods in Thailand.
Thailand, Indonesia and Malaysia are the world’s top producers and exporters of rubber, accounting for 70% of global output. It has been widely anticipated that these top suppliers would embark on measures to stem the decline in natural rubber prices.
Policymakers in Thailand, for example, plan to spend 10 billion baht (RM1 billion) to increase inventory of the commodity. It was reported that a soft loan of some 10 billion baht would be given to the country’s estimated 600 cooperatives to purchase rubber from farmers at 95 baht per kg. The move is expected to drain supply out of the market to support prices of the commodity. Lawmakers there have also encouraged tappers to delay tapping between now and January next year to cut supply.
OSK’s Yap said amid expectations that top rubber producers will stem the decline in rubber prices, glove buyers are anticipated to increase their inventory ahead of the next year’s wintering season, when latex production is lower.
Rubber prices declined to fresh lows in recent days on expectation that the eurozone sovereign debt woes and lower vehicle output by major automotive players in Thailand due to the floods will reduce demand for the commodity.
Over the last six months, Malaysian latex prices have fallen 32% from a high of RM9.51 a kg on May 27 to RM6.43 on Nov 14.
The eurozone debt woes are far from over. Economists expect economic activities there to further weaken after a survey involving purchasing executives indicated that the manufacturing and service industries declined further last month leading to expectations of a contraction in the eurozone’s GDP in 4Q11 and 1Q12.
As the automotive sector consumes 70% of world rubber supply, a perceived weakness in the automotive industry will naturally impact rubber prices.
The floods in Thailand are creating a second major supply disruption in the global automotive sector since the March 11 earthquake and tsunami in Japan. According to news reports, the floods in Thailand have spread across 64 of Thailand’s 77 provinces and affected seven industrial enclaves where Honda Motor Co and auto parts makers have set up factories.
Global automotive players are also feeling the pinch. According to news reports, car factories across the Americas, and Asia, including Malaysia and Indonesia, will see lower vehicle output due to the supply chain disruption.
RHB Research Institute wrote in a note last Friday that it had revised downwards its 2011 total industry volume (TIV) for the Malaysian automotive sector to 604,000 units compared with 616,000 units previously.
This follows guidance from the Malaysian Automotive Association (MAA) that vehicle sales here would decline this month due to supply disruptions resulting from the floods in Thailand.
Year-to-date till October, Malaysian TIV fell 0.3% to 503,898 units, according to MAA.
This article appeared in The Edge Financial Daily, November 21, 2011.
Analysts said rubber prices could be stifled by lower demand due to the eurozone sovereign debt crisis, besides automotive sector supply chain disruption from the floods in Thailand. Normalising demand for rubber gloves in the absence of disease outbreaks is another factor underlying lower consumption of rubber in the coming months.
“There is a downside bias to our forecast for rubber prices,” an analyst with MIDF Amanah Investment Bank Bhd told The Edge Financial Daily.
MIDF’s forecast indicates that latex will trade at an average of RM9 a kg this year before falling to RM8.75 in 2012. An analyst said the current situation would benefit glovemakers with a higher composition of NR gloves than synthetic rubber or nitrile glovemakers. Notable players include Top Glove Corp Bhd whose portfolio comprises 81% natural rubber gloves with the balance 19% being nitrile products.
Supermax Corp Bhd has a ratio of 80:20 for natural and nitrile gloves respectively while Kossan Rubber Industries Bhd has a ratio of 55:45.
Concerns over normalising demand for gloves due to the absence of outbreaks have given rise to fears of a price war among players, which could hurt the profit margins of these companies, the analyst added.
“Buyers of rubber gloves are adopting a wait and see attitude in anticipation of rubber prices going down further,” she said. Latex makes up some 60% of glovemakers’ cost.
The analyst said that while floods in Thailand have caused supply chain disruptions for the automotive sector, the situation there has begun to recover, and this is expected to lend support to rubber prices.
OSK Research Sdn Bhd analyst Jason Yap said he expects rubber prices to decline in the long term as demand is seen to be anaemic. This is due to moves by glovemakers to increase output of nitrile products and normalising demand for gloves.
Yap also said the global automotive sector, which consumes 70% of world rubber output, encountered setbacks against a weak global economic backdrop and floods in Thailand.
Thailand, Indonesia and Malaysia are the world’s top producers and exporters of rubber, accounting for 70% of global output. It has been widely anticipated that these top suppliers would embark on measures to stem the decline in natural rubber prices.
Policymakers in Thailand, for example, plan to spend 10 billion baht (RM1 billion) to increase inventory of the commodity. It was reported that a soft loan of some 10 billion baht would be given to the country’s estimated 600 cooperatives to purchase rubber from farmers at 95 baht per kg. The move is expected to drain supply out of the market to support prices of the commodity. Lawmakers there have also encouraged tappers to delay tapping between now and January next year to cut supply.
OSK’s Yap said amid expectations that top rubber producers will stem the decline in rubber prices, glove buyers are anticipated to increase their inventory ahead of the next year’s wintering season, when latex production is lower.
Rubber prices declined to fresh lows in recent days on expectation that the eurozone sovereign debt woes and lower vehicle output by major automotive players in Thailand due to the floods will reduce demand for the commodity.
Over the last six months, Malaysian latex prices have fallen 32% from a high of RM9.51 a kg on May 27 to RM6.43 on Nov 14.
The eurozone debt woes are far from over. Economists expect economic activities there to further weaken after a survey involving purchasing executives indicated that the manufacturing and service industries declined further last month leading to expectations of a contraction in the eurozone’s GDP in 4Q11 and 1Q12.
As the automotive sector consumes 70% of world rubber supply, a perceived weakness in the automotive industry will naturally impact rubber prices.
The floods in Thailand are creating a second major supply disruption in the global automotive sector since the March 11 earthquake and tsunami in Japan. According to news reports, the floods in Thailand have spread across 64 of Thailand’s 77 provinces and affected seven industrial enclaves where Honda Motor Co and auto parts makers have set up factories.
Global automotive players are also feeling the pinch. According to news reports, car factories across the Americas, and Asia, including Malaysia and Indonesia, will see lower vehicle output due to the supply chain disruption.
RHB Research Institute wrote in a note last Friday that it had revised downwards its 2011 total industry volume (TIV) for the Malaysian automotive sector to 604,000 units compared with 616,000 units previously.
This follows guidance from the Malaysian Automotive Association (MAA) that vehicle sales here would decline this month due to supply disruptions resulting from the floods in Thailand.
Year-to-date till October, Malaysian TIV fell 0.3% to 503,898 units, according to MAA.
This article appeared in The Edge Financial Daily, November 21, 2011.
