Weak tire demand and rising inventories pressured Japanese and Shanghai rubber futures, while geopolitical tensions and firm oil prices limited losses.
Japanese and Shanghai rubber futures experienced declines on Monday, primarily driven by a confluence of weak global tire demand and elevated inventories. The Osaka Exchange (OSE) rubber contract for October delivery saw a slight dip of 0.5 yen, settling at 413.1 yen ($2.63) per kg. Similarly, the Shanghai Futures Exchange (SHFE) September delivery rubber contract fell by 120 yuan to 17,865 yuan ($2,629.14) per metric ton, with the most active June butadiene rubber contract also registering losses.
The core issue behind these falling prices is the sluggish demand for tires, both domestically within China and for export markets. Data from the Shanghai Futures Exchange revealed a 3.8% week-on-week increase in rubber inventories in monitored warehouses, signaling an oversupply in the market. This accumulation of stock indicates that consumption is not keeping pace with supply. According to media reports the anticipated boost in Chinese downstream tire exports, following the easing of European anti-dumping and countervailing duties, has not materialized.
The demand outlook for tire exports is further complicated by geopolitical tensions, specifically "the Iran war," which is "muddying" market sentiment. This geopolitical instability also influences crude oil prices, which rallied on Monday due to supply fears related to the Strait of Hormuz. Ironically, these firm oil prices are providing a degree of support to natural rubber prices. Natural rubber competes with synthetic rubber, which is derived from crude oil. Therefore, higher crude oil costs make synthetic rubber more expensive, which can, in turn, underpin natural rubber prices by making it a more competitive alternative.
The industry is currently facing slow inventory absorption, creating a "risk-off selling" environment akin to equity markets. While there are some mitigating factors, such as the expected easing of thunderstorms in top rubber producer Thailand, the overarching weakness in tire demand and high stock levels remain the dominant forces exerting downward pressure on futures prices. The decline in rubber futures highlights the challenges faced by the automotive and tire manufacturing sectors, reflecting broader economic slowdown concerns and the impact of geopolitical events on global trade and commodity markets.
