Jom Jacob The Rubber Board*, India (* The views presented here do not necessarily imply those of the organization ) To understand the behavior of NR prices across key markets, during 7-2012, with focus on: The trends, trend-breaks and volatility. To identify the key determinants of the prices. To make an assessment on the emerging trends in global supply & demand and their potential influence on NR market. 1
600 550 450 350 July 8 US financial crisis. Drastic fall in auto sales. Global economic crisis. US $ strengthens. Oil falls to 68US$/barrel. Contract defaults in NR markets Prices of STR 20 & SMR 20 Oct. 2010 Tightness in supply. Flow of financial capital Appreciation of Baht, Rupiah, RM. 2010: Q1 to Q3 Demand slows down. 2011: EU crisis aggravates. Inflation in China & India. Demand slows down. Shift to SR. 250 150 50 May 8 Financial capital flow to Commodities. Oil touched 143 USD/barrel. Supply slowed down. March 2011 Tsunami n Japan Sep. 9. Economic stimulus measures Cash for clunkers. Crude oil recovers. NR supply falls on adverse weather. Export curtailment under ITRC. Strengthening of Baht, Rupiah, RM. Capital flows to Asian financial markets. 6 Jan 07 6 Mar 07 6 May 07 6 Jul 07 6 Sep 07 6 Nov 07 6 Jan 08 6 Mar 08 6 May 08 6 Jul 08 6 Sep 08 6 Nov 08 6 Jan 09 6 Mar 09 6 May 09 6 Jul 09 6 Sep 09 6 Nov 09 6 Jan 10 6 Mar 10 6 May 10 6 Jul 10 6 Sep 10 6 Nov 10 6 Jan 11 6 Mar 11 6 May 11 6 Jul 11 6 Sep 11 6 Nov 11 6 Jan 12 6 Mar 12 6 May 12 6 Jul 12 6 Sep 12 2
Prices of RSS 3 in Bangkok & RSS 4 in Kottayam 650 600 RSS-3 Bangkok 550 450 350 250 150 50 6 Jan 07 17 Feb 07 31 Mar 07 12 May 07 23 Jun 07 4 Aug 07 15 Sep 07 27 Oct 07 8 Dec 07 19 Jan 08 1 Mar 08 12 Apr 08 24 May 08 5 Jul 08 16 Aug 08 27 Sep 08 8 Nov 08 20 Dec 08 31 Jan 09 14 Mar 09 25 Apr 09 6 Jun 09 18 Jul 09 29 Aug 09 10 Oct 09 21 Nov 09 2 Jan 10 13 Feb 10 27 Mar 10 8 May 10 19 Jun 10 31 Jul 10 11 Sep 10 23 Oct 10 4 Dec 10 15 Jan 11 26 Feb 11 9 Apr 11 21 May 11 2 Jul 11 13 Aug 11 24 Sep 11 5 Nov 11 17 Dec 11 28 Jan 12 10 Mar 12 21 Apr 12 2 Jun 12 14 Jul 12 25 Aug 12 6 Oct 12 650 Prices of RSS & TSR 600 RSS-3 Bangkok 550 450 350 250 150 50 6 Jan 07 17 Feb 07 31 Mar 07 12 May 07 23 Jun 07 4 Aug 07 15 Sep 07 27 Oct 07 8 Dec 07 19 Jan 08 1 Mar 08 12 Apr 08 24 May 08 5 Jul 08 16 Aug 08 27 Sep 08 8 Nov 08 20 Dec 08 31 Jan 09 14 Mar 09 25 Apr 09 6 Jun 09 18 Jul 09 29 Aug 09 10 Oct 09 21 Nov 09 2 Jan 10 13 Feb 10 27 Mar 10 8 May 10 19 Jun 10 31 Jul 10 11 Sep 10 23 Oct 10 4 Dec 10 15 Jan 11 26 Feb 11 9 Apr 11 21 May 11 2 Jul 11 13 Aug 11 24 Sep 11 5 Nov 11 17 Dec 11 28 Jan 12 10 Mar 12 21 Apr 12 2 Jun 12 14 Jul 12 25 Aug 12 6 Oct 12 3
700 600 600 0 7 8 9 2010 2011 2012 0 7 8 9 2010 2011 2012 STR-20 Bangkok SMR-20 Kuala Lumpur 700 600 600 0 7 8 9 2010 2011 2012 0 7 8 9 2010 2011 2012 RSS-3 Bangkok RSS-4 Kottayam 4
25 20 15 10 RSS 4 SMR 20 RSS 3 STR 20 5 0 7 8 9 2010 2011 2012 5
10 450 10 00 350 9 250 9000 150 8 50 8000 7 8 9 2010 2011 2012 0 11, 11,000 450 10, 350 10,000 250 9, 9,000 150 8, 50 8,000 7 8 9 2010 2011 2012 0 6
NR prices cannot be explained exclusively on demand and supply. NR is an internationally traded commodity and its production is export-oriented in major producing countries. Thailand: 88 % exported Indonesia: 87 % exported Currency rates against US$ hold a profound influence on the prices. Due to speculation on possible substitution between NR and SR, crude oil market can influence NR prices. Japanese yen can influence through TOCOM rubber futures. Hedge funds can drive rubber market through speculative investment decisions in response to changing economic outlook, policies and geopolitical developments. 7
Currency Indices and NR Price Indices 330 107 104 280 Currency Index 101 230 98 95 180 92 130 89 NR price index 86 80 83 30 80 6 Jan 07 6 Mar 07 6 May 07 6 Jul 07 6 Sep 07 6 Nov 07 6 Jan 08 6 Mar 08 6 May 08 6 Jul 08 6 Sep 08 6 Nov 08 6 Jan 09 6 Mar 09 6 May 09 6 Jul 09 6 Sep 09 6 Nov 09 6 Jan 10 6 Mar 10 6 May 10 6 Jul 10 6 Sep 10 6 Nov 10 6 Jan 11 6 Mar 11 6 May 11 6 Jul 11 6 Sep 11 6 Nov 11 6 Jan 12 6 Mar 12 6 May 12 6 Jul 12 6 Sep 12 Crude Oil Prices and TOCOM RSS-3 Prices 550 Brent crude oil spot 150 140 130 450 120 110 350 90 80 250 70 60 150 50 40 30 50 20 06 Jan 07 06 Feb 07 06 Mar 07 06 Apr 07 06 May 07 06 Jun 07 06 Jul 07 06 Aug 07 06 Sep 07 06 Oct 07 06 Nov 07 06 Dec 07 06 Jan 08 06 Feb 08 06 Mar 08 06 Apr 08 06 May 08 06 Jun 08 06 Jul 08 06 Aug 08 06 Sep 08 06 Oct 08 06 Nov 08 06 Dec 08 06 Jan 09 06 Feb 09 06 Mar 09 06 Apr 09 06 May 09 06 Jun 09 06 Jul 09 06 Aug 09 06 Sep 09 06 Oct 09 06 Nov 09 06 Dec 09 06 Jan 10 06 Feb 10 06 Mar 10 06 Apr 10 06 May 10 06 Jun 10 06 Jul 10 06 Aug 10 06 Sep 10 06 Oct 10 06 Nov 10 06 Dec 10 06 Jan 11 06 Feb 11 06 Mar 11 06 Apr 11 06 May 11 06 Jun 11 06 Jul 11 06 Aug 11 06 Sep 11 06 Oct 11 06 Nov 11 06 Dec 11 06 Jan 12 06 Feb 12 06 Mar 12 06 Apr 12 06 May 12 06 Jun 12 06 Jul 12 06 Aug 12 06 Sep 12 06 Oct 12 8
Ln Price NR = 0.7406 Ln Price Oil + 2.3136 (t-ratio: 20.1) Each % change in crude oil price induces 0.74 % change in NR price in the same direction. It is through the TOCOM rubber futures that significance of Japanese yen arises among the key drivers of NR prices. Japanese yen is one of the currencies which investors often consider as a safe-haven under an uncertainty. Whenever the yen gains strength, the BoJ intervenes in view of the potential damage of a stronger yen to the export-dependent economy. 9
Japanese Yen and TOCOM RSS-3 Futures 550 120 450 110 350 90 250 80 150 70 6 Jan 07 24 Feb 07 14 Apr 07 2 Jun 07 21 Jul 07 8 Sep 07 27 Oct 07 15 Dec 07 2 Feb 08 22 Mar 08 10 May 28 Jun 08 16 Aug 08 4 Oct 08 22 Nov 08 10 Jan 09 28 Feb 09 18 Apr 09 6 Jun 09 25 Jul 09 12 Sep 09 31 Oct 09 19 Dec 09 6 Feb 10 27 Mar 10 15 May 3 Jul 10 21 Aug 10 9 Oct 10 27 Nov 10 15 Jan 11 5 Mar 11 23 Apr 11 11 Jun 11 30 Jul 11 17 Sep 11 5 Nov 11 24 Dec 11 11 Feb 12 31 Mar 12 19 May 7 Jul 12 25 Aug 12 13 Oct 12 50 Commodity markets have emerged as the most important avenue for speculative investments. Near-zero interest rates in advanced countries attract investment funds to fastgrowing Asian markets. Flooding of such funds can causes boom in commodity prices through speculative investments. 10
Under uncertainty, they leave commodities to safe-haven currencies or gold. The period from Q 2 2011 onwards has seen a sharp reduction in speculative investments in response to the Euro crisis, political unrest in the Middle East and North Africa, and the tsunami in Japan. 700 550.00 600.00 450.00.00 Tocom futures 350.00.00 250.00.00 150.00.00 0 50.00 6 Jan 07 24 Feb 07 14 Apr 07 2 Jun 07 21 Jul 07 8 Sep 07 27 Oct 07 15 Dec 07 2 Feb 08 22 Mar 08 10 May 08 28 Jun 08 16 Aug 08 4 Oct 08 22 Nov 08 10 Jan 09 28 Feb 09 18 Apr 09 6 Jun 09 25 Jul 09 12 Sep 09 31 Oct 09 19 Dec 09 6 Feb 10 27 Mar 10 15 May 10 3 Jul 10 21 Aug 10 9 Oct 10 27 Nov 10 15 Jan 11 5 Mar 11 23 Apr 11 11 Jun 11 30 Jul 11 17 Sep 11 5 Nov 11 24 Dec 11 11 Feb 12 31 Mar 12 19 May 12 7 Jul 12 25 Aug 12 13 Oct 12 11
Ln(RSS3) Bangkok = 1.0374 Ln(RSS3) Tocom - 0.6907 (t-ratio: 35.69) R 2 =0.81 12
Yielding area expanded this year by 115,000 ha. But, average yield is on a decline. Supply cannot rise beyond 0.6% this year. Export curtailment under the ITRC can take the supply to negative territory. ITRC decided to curtain exports by,000 ton during the period from October 2012 to March 2013. Yielding area expanded 67,000 ha in 2012. Fall in average yield this year will bring down production by at least 0.1%. ITRC s intervention can further lower the supply 13
Area under tapping has come down by 17,000 ha. There is a decline in average yield this year. This year s supply will be lower by at least 4.7% 14.0 12.0 10.0 Non-ANRPC 8.0 6.0 Aggregate 4.0 2.0 ANRPC 0.0 2012 2013 2014 2015 2016 2017 2018 2019 14
1 1 1 0 900 800 700 600 12 10 8 6 4 2 0 2 China India World U.S. Euro Area 2010 2011 2012 2013 15
Q 4 2011 Q 4 2012 U.S. 2.0 1.7 Euro Area 0.7-0.5 China 8.9 7.9 India 5.0 5.5 World 3.2 3.0 115 Brent spot average in US$ / barrel 110 105 95 90 Average for 2012: 111.8 Average for 2013: 103.4 85 16
This year s low supply and the seasonal down beginning from December 2012 will stay as a plus factor until May 2013. But, the demand-prospects heavily depend on the emerging global economic situation. IMF s forecasts do not favour a revival of the demand sector during 2012. No marked recovery is expected for 2013 either. Oil forecasts are not favourable to NR at least till the end of 2013. Economic uncertainties are likely to reduce the appetite for speculative investments. Investors would rather prefer safe-haven gold and strong currencies. Despite a very low supply, NR market is unlikely to gain momentum until the global economy takes a clear recovery path. 17
Thank you for your attention 35 18