Prices more volatile before Fed interest rate decisions
The average daily change in this price differential for the month up till 20 March is about US$6/mt, being slightly lower than the average since October 2021. Since then, this differential has changed by an average US$11/mt daily. Assume a Thai seller locked in a contract to sell STR20 at a US$26/mt premium over SICOM TSR20 P3 on 8 March 2023 for shipments due June 2023. Just 1 day after, this differential increases to US$37/mt for the same June shipment. The seller could have locked in a higher differential to sell STR20 at a higher premium over SICOM TSR20. This situation would be worse when there are larger swings in the price differentials, reflecting a loss of potential profits for the producer.
But, changes in underlying macroeconomic variables will cause differentials to change drastically yet again, as illustrated in an earlier paragraph. Physical rubber prices and SICOM futures, although moving in the same direction, moved at different rates and resulted in the differential increasing. The current moving averages have been trending sideways, reflective of little change in physical rubber price differentials over the SICOM Futures.