Helixtap China report: Declining inventory could help revive demand

The Chinese rubber market is encountering difficulties stemming from slow economic growth, insufficient stimulus measures, and the forthcoming imposition of tariffs from Western nations. The current state of domestic demand remains weak, leading to a pessimistic outlook.

Nonetheless, a sustained decrease in both TSR and NR inventory levels may stimulate a resurgence in demand for international cargoes. In the interim, the Chinese government has submitted its final batch of outdated stocks scheduled for rotation. China is anticipated to restore its reserve stock following the liquidation of its remaining inventory. 

The TSR inventory level has reached its lowest point in the last 13 months, with the recent decline in Chinese purchasing for international cargoes primarily reflecting a transition towards warehouse cargoes. Amid fluctuations in forex and TSR prices, there has been a notable trend of increased interest among Chinese buyers in domestically available stocks.  Consequently, a consistent downward trend in the TSR inventory level has been observed both monthly and annually.

The TSR 20 stock level at SHFE has experienced a consistent downward trend since early September, culminating in an approximate xx% decrease in stock levels as of the week of xx, over the preceding month. The TSR stock has experienced a notable decline on an annual basis, currently reflecting a decrease of approximately xx%.

Arbitrage widens for Indo and African rubber 

The disparity between INE rubber prices and international rates has continued to expand. The easing in supply led to expectations of a more pronounced correction; however, this was constrained by fluctuations in foreign exchange rates and persistently high raw material costs. The anticipated support from the Chinese stimulus did not materialize as expected, resulting in a minimal effect on purchasing sentiment. 

In the current market landscape, the increasing disparity between natural and synthetic rubber has prompted a shift in arbitrage activities, favoring synthetic rubber purchases. 

The parity experienced an increase for STR 20 mixture, with the spread recorded at US$xx/mt. The current market conditions present an opportunity for arbitrage in the STR 20 mixture, influenced by the depreciation of the Yuan and recent adjustments in freight rates. 

Strong trade data 

In October, China's import and export growth demonstrated an acceleration, surpassing market expectations. Although a portion of the increase can be linked to government stimulus support, there was also a notable surge in activity. 

Following a decline in September, October experienced a rebound in both import and export activities. Amid rising trade barriers, Chinese exports have shown significant resilience. It is conceivable that a degree of frontloading in exports could have contributed to this anomaly. 

Conversely, while there was a favorable month-on-month trend, imports saw an annual decrease of around xx% in October, underscoring the difficulties encountered by domestic demand and the broader outlook for demand in China. 

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