Rubber

Prices

Physical market
Futures market
On-line information on natural rubber prices

Physical market

Prices of natural rubber are not uniform, as they vary (although they tend to have a quite high correlation) across types and grades, with variations between RSS and TSR grades (RSS being ribbed smoked sheet and TSR being technically specified rubber in block form). Separate quotations exist for latex concentrates and bulk latex.
The major markets include Kuala Lumpur, London, New York, Tokyo, Bangkok, Shanghai and Singapore.

Rubber price, Singapore RSS 1 fob in bales, 1960 - 2005

Source: UNCTAD secretariat (Data: UNCTAD Commodity Price Bulletin)

The rubber balance (interaction of demand and supply), NR stock accumulation, and currency movements figure among the underyling causes behind historic price developments in natural rubber. It should be recalled that demand for NR is derived, in that it depends on demand for determined final goods (notably tires), of which NR is only one component. This makes natural rubber particularly exposed to developments in the automotive industry, itself highly sensitive to economic rebound or recession. Also, and although technical requirements might constrain the ease of substituting SR for NR, the share of NR in rubber consumption is likely to be affected by the price of its syntetic rubber (SR) substitutes, which is in turn strongly influenced by development in oil prices. The higher oil prices are, the more attractive natural rubber is. Thus, since the early 2000s, it appears that NR prices have been gaining additional support from high and rising oil prices, via synthetic rubber prices (which rose in response to the strength of feedstock prices). Besides changes at the fundamental level, currency movements may play a part in rubber price developments.

Prices in world major rubber exchange markets have moved upward through 2001 - 2006. The average price of RSS3 rubber (Thailand) in 2005 was 60.4 Baht/kg, 14% higher than that in 2004 and 138% higher than 2001, it therefore reached the highest historical level. Similar price rises could be observed in 2006. Trends in other major markets are similar. The price rise, in nominal terms, appears to have been due, among others, to increasing NR demand from China, fuelled by ongoing growth in demand for automobiles and high oil prices. In general, sharp economic growth in China has translated into heightened demand for various raw materials, which provided a boost to the consumption and prices of many commodities. Technological innovation can also play a significant role in the long term as it opens up new outlets which can boost rubber demand.

As regards short term developments, seasonal factors continue influencing prices throughout the year. Wintering is a seasonal occurrence that reduces the natural yield of rubber trees through March-May in Southeast Asia. Seasonal variations in production, as well as the effective operations of spot markets, are short-run factors affecting rubber prices. Speculative positions are also an important factor to consider as bullish commodity prices tend to attract investors whom, in their turn, are likely to impact the market.

In addition to be determined in the open market, rubber prices can also be set through direct trading arrangements, using long-term contracts (see for example Bridgeston long-term contracts with Thai exporters, as reported in Rubber&Plastics News II, 8 July 2002).

Furthermore, rubber prices have been influenced by different market interventions at both the national and international levels. For instance, some national schemes using stockpile strategies have had an impact on international price discovery mechanisms (e.g. Thailand). Similarly, the setting-up of a joint supply management scheme within the International Tripartite Rubber Organization (ITRO) can be seen as a new driving force in this regard, with the possibility since 2003 to step in the market in order to stabilize the prices if necessary (this mechanism hasn't been employed so far due to the market growth).

Futures market activities

One of the main goal of futures market is to provide price discovery mechanism at domestic, regional and/or international levels. Several exchanges are trading rubber. Singapore Commodity Exchange (SICOM) and the two Japanese exchanges, Tokyo Commodity Exchange (TOCOM) and the Osaka Mercantile Exchange (OME) which trade rubber index are the major exchanges undertaking futures trading of rubber. OME merged in August, 22, 2006 with the Central Japan Commodity Exchange (C-COM).

Rubber futures contract specifications - SICOM, TOCOM and C-COM

SICOM	RSS1
	RSS3
	TSR20 FOB Contract
	RSS3 Index Contract
TOCOM	Deliverable grades: RSS No.3 or 4 of International Standard Specifications
	Contract Specifications (Rubber) until June 2005 contract
	Contract Specifications (Rubber) July 2005 and all subsequently listed contracts
C-COM	Rubber Index
	RSS3
	TSR20

Source: UNCTAD secretariat

Contracts with different quality specifications are also offered on the Kuala Lumpur Commodity Exchange (KLCE), the Shangai Futures Exchange (SHFE) and the National Multi-Commodity Exchange of India (NMCEI). Volume traded and turnover in SHFE natural rubber have been booming these last few years, with for instance a growth of 403% in volume and 680 in turnover between March 2005 and March 2006. - accounting for more than 40% of total business of this exchange (should copper, aluminium fuel oil and rubber be considered).

Rubber futures contract specifications - SHFE and NMCEI