Helixtap China report: China Navigates Uncertain Rubber Market Amid US Tariff Tensions

The current market outlook for rubber is marked by uncertainty, primarily due to escalating tensions between the US and China. The rubber market is closely observing these developments, as anticipated tariff increases could significantly impact China's export levels to the US.

This situation may compel Chinese policymakers to implement stronger interventions to counteract the adverse effects of tariffs. The potential for US tariffs and protectionist measures could also restrict global capital movement, negatively affecting demand in Asia.

Despite these challenges, the ongoing decline in TSR inventory levels may trigger a restocking phase, potentially reigniting interest in international cargoes. However, the depreciation of the Chinese yuan is likely to alter purchasing behavior, 

With the Lunar New Year holidays, restocking activities have led to a slight increase in TSR and Natural Rubber (NR) stock levels at SHFE. However, the overall demand revival is still uncertain, with the current inventory levels remaining considerably lower than previous years. The market is closely monitoring international price corrections, which could influence buying behaviors and potentially slow down destocking efforts.

Arbitrage opportunities have emerged, particularly for STR 20 and TSR 20 CIF prices, with notable narrowing gaps observed in recent weeks. The inflow of SIR 20 is expected to increase as it becomes the most economical option in the Asian market. African rubber has emerged as a cost-effective choice for China, with significant price spreads observed compared to other regions.

China's rubber trade data showed a robust increase in imports in December, largely driven by seasonal restocking and a rush to fulfill orders before anticipated tariffs. Exports also saw a marginal increase, although the competitiveness of Chinese products in the global market is hampered by deflationary pressures and a weak yuan.

The trade flow has shifted, with Russia becoming a primary market for Chinese tires, despite a slight contraction in volume. Notably, there was a significant uptick in imports from Europe, particularly the UK and Germany, as exporters rushed to meet demand before tariff implementation. Overall, the market remains dynamic, with ongoing adjustments in trade patterns and pricing strategies influenced by geopolitical factors and economic conditions.

Credit to: Helixtap Data