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4 Jun 2008


Skyrocketing Rubber Prices, 1H08: Bright Outlook for 2H08 and 2009 (Current Issue No.2075)

Since early this year, rubber prices have increased steadily thanks to dwindling outputs from key rubber producers as a result of heavy rainfall in their cultivation areas. Amid concern about rubber output shortfalls, rubber-consuming countries have rushed to make purchases to shore up their stockpiles, which favorably led to record highs in Thailand's rubber exports. In addition, escalating oil prices have lifted the prices of synthetic rubber, which is a substitute for natural rubber. The increases in rubber prices also stem from speculative trading of rubber – one of the commodities – by hedge funds, as evidenced from the volatile rubber prices on the Singapore Commodity Exchange, Tokyo Commodity Exchange and Agricultural Futures Exchanges of Thailand (AFET). Another positive factor for the higher rubber prices is strong domestic demand for rubber thanks to expansion in Thailand's automotive and related industries, in line with the government's goal of making Thailand a region hub for the production of automobiles and parts.
Looking ahead, though high prices of rubber are expected to continue into the second half of this year, there will be no runaway prices like what has been seen in the first half. This can be attributed to the supply situation that will return to normalcy (after unusually low supplies in March and April) and reduced concern about rubber shortages amid huge stockpiles in rubber consuming countries. In addition, rubber prices are poised to become volatile as international hedge funds have been seen shifting from costly rubber to other commodities instead.
Notably, the EIU (Economist Intelligence Unit) has revised upward their rubber price projection for 2008 due to strong growth in the automotive industry. For 2009, the Rubber Research Institute and those in the rubber industry project that global rubber prices will remain high, but lower than those in 2008. This is due to rising output amid expansion in rubber planting areas, plus the unrealistically high rubber prices that do not reflect the fundamentals in 2008. For next year, rubber prices are thus likely to see a correction to more realistic values, and may fluctuate according to news related to supply and demand. Based on the latest trends, fluctuations in global oil prices may be used as an indicator to predict future rubber prices.

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