China EV boom, poor Thailand harvest inflate natural rubber prices

Natural rubber prices have climbed to a level not seen in nearly three years on growing demand from China's electric vehicle industry coupled with poor yields in Thailand, a leading producer of the tire material.

Benchmark natural rubber futures traded for 283.60 yen ($1.93) a kilogram as of Thursday on the Osaka Exchange. The price was up 11% from the end of 2023.

Rubber touched 289.50 yen per kilogram on Jan. 25, a high not seen since February 2021.

These gains have been driven by booming car sales in China. During the first half of last year, new-auto sales mostly hovered in the low 2 million-vehicle range per month, according to the China

Association of Automobile Manufacturers (CAAM). But in November, sales jumped 27.4% from a year earlier to 2.97 million vehicles, then to 3.15 million in December, a 23.5% rise.

In particular, monthly sales of new energy vehicles, a category that includes EVs, topped 1 million units for the first time in November.

Higher auto sales lift demand for natural rubber. In December, China's demand for tires bound for new vehicles leapt 30% from a year earlier, according to Michelin.

"China's tire demand showed signs of bottoming out in December," said Shinichi Kato, president of the Tokyo-based rubber distributor Shinichi Kato Office. "Local factories are moving to increase production of tires."

Concerns are cropping up on the supply side as well. Heavy rains in Thailand, the world's top natural rubber producer, in December hurt crop growth. In Southeast Asia, November to January is normally a high-output season for latex tapped from rubber trees.

"Because of the inclement weather impact this fiscal year, they were unable to increase output sufficiently during the high production season," said Gu Jiong, head of the corporate investment and service division at Yutaka Trusty Securities.

Thailand rubber futures stood at 73.07 baht ($2.06) per kilogram Thursday, a roughly 19-month high.

The poor harvest in Thailand has tightened inventories in Japan. Warehouses designated by the Osaka Exchange held 6,240 tonnes of natural rubber on Jan. 20.

"Inventory inflows from source regions are slow," said Gu. "Inventory is normally around 10,000 tonnes at that time of year, and the market is conscious of the perceived shortage."

The prevailing view is that rubber prices will remain resilient. Chinese auto sales are projected to grow this year to about 31 million vehicles, according to CAAM.

Southeast Asia is entering the low-producing season for natural rubber that stretches from February through April.

"At the very least, prices will be unlikely to fall until the low production season is over," said a source at a specialist trading firm.

Michelin's Japanese arm, Nihon Michelin Tire, on Thursday raised delivery prices for passenger vehicle and other tires 6% to 10%, citing higher labor and raw material costs.

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