The price of natural rubber, the commodity used in products ranging from tyres to condoms, hit an all-time high above $3.50 per kilogramme on Wednesday after a severe drought in Thailand, the world’s largest producer, curtailed supplies.
The increase has broken one of the longest standing price records in commodities, dating back to 1952, when fears about the potential spread of the Korean War to key south-east Asian rubber-producing countries triggered panic buying.
The benchmark rubber ribbed smoked sheet 3, or RSS3, was quoted on Wednesday at $3.52 per kg in the physical market, according to data from the Rubber Research Institute of Thailand, surpassing the $3.50 per kg peak set almost 60 years ago.
The price increase – about 75 per cent over the past year – is likely to lift costs for manufacturers heavily dependant on the commodity, particularly tyres. In the past, most companies have passed the cost increase on to their consumers.
“The present market is tough for raw material purchasing managers,” said Jom Jacob, a senior economist at the Kuala Lumpur-based Association of Natural Rubber Producing Countries. “We could imagine what would be the response of the rubber market if tyre companies frantically enter the market. Perhaps, they do not want to fuel the prices further,” Mr Jacob added.
The physical market for rubber is more important that the derivatives market, which is based in Tokyo, quoted in yen and mostly attracts interest from Japanese speculators.
At the Tokyo Commodities Exchange, rubber for delivery in September on Wednesday rose to Y311.3 per kg, an 18-month high. The exchange rate between the yen and the US dollar has a big influence on rubber futures.
The price surge comes on the back of the worst drought in north Thailand in a decade, which meteorologists blame on the lingering impact of the El Niño weather phenomenon. Drought has also hit India, the world’s fourth-largest producer.
Meteorologists said the recurring climatic event – caused by a rise in the water temperature in the tropical Pacific – hit its peak in January and has since shown signs of cooling.
But its impact is now being fully felt on rubber plantations. In any case, rubber supplies usually decline during the February-to-April winter season in Thailand.
While supply lags, demand has been stronger than expected in emerging markets. China, the world’s largest rubber consumer, has stepped up buying, with imports in January and February up almost 80 per cent compared with the same period of 2009.
India and Malaysia, two key consumers, are also buying more.
(ft.com)
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