Arusha – The future state of the rubber industry is uncertain due to prevailing factors ranging from Central Banks raising key interest rates to newly emerging waves of the Omicron Subvariants.
Hello and welcome to Helixtapping the industry, a series where we examine the forces driving the rubber markets today. I am Arusha Das, Head Pricing Data & Research for Helixtap Technologies
I am joined today by my colleague, Alvin Chew, Director Data Commercialization to discuss the key findings of the analytics team around price dynamics for physically traded rubber and rubber futures.
Hi Alvin
Alvin – Hi Arusha
Arusha – Let’s delve into the discussion right away. I understand the analytics team recently analysed price dynamics for physical rubber and rubber futures. What is the key takeaway of the analysis?
Alvin – From our analysis, we observed that SICOM TSR20 first position prices for May 2022 were trading at its lowest monthly average in the past 12 months. The price support level was around US$1600/mt, a level in which based on analysis we will see prices starting to trend upwards once it is near this range. The resistance level is around US$1800/mt to US$1850/mt – prices are likely to be under downward pressure once it gets close to this price range. For SICOM TSR20, since both the 20 days moving average and 50 days moving average are below the 200 days moving average, it does suggest that prices are likely to be under downward pressure in the short and long term. And since we published this analysis, prices indeed trended downwards
Another key highlight is that the Helixtap STR20 price was trading at a higher than usual price level for the past year from May 2021 to May 2022. The average price during this period at US$1,772/mt is the historical high compared to price averages for the same time period since 2015. Moving averages analysis suggest the STR20 price will likely stay at a lower range in the months ahead.
Arusha – That’s interesting. Understanding the support and resistance price levels will allow market participants to sort of anticipate what would happen to the SICOM price next. For example, if the SICOM TSR20 price gets close to US$1600, from the analysis we should expect a price rebound soon. That would certainly allow me to plan my buying or contract negotiations better.
Alvin – Exactly. Like when we know the STR20 price was trading at historically high average in the past year, coupled with the lower Helixtap Thai raw mat price, we might want to be a bit more conservative in our outlook for the STR20 price in the near term. The moving averages analysis also acts as a guide to how the prices will behave next.
Arusha – We all know that the industry is currently using the price differential between physical rubber and rubber futures in contract negotiations – to get the SICOM price nearer to the physical price. What insights can we infer from the analysis on this differential?
Alvin – The STR20 versus SICOM TSR20 differential has been at a consistent premium since October 2020. There was also a record of 413 days of consecutive differential premium with the period from 2015 to 2022. Our analysis suggests that the differential will start to rebound towards the 20 days moving average when it approaches US$0/mt and US$100/mt.
The key highlight for the SIR20 differential is that it has higher volatility when compared to the STR20 differential. A swing of almost US$200/mt in this differential was observed from February to May this year. Such a large swing within a three months period presents a big price risk for market participants using this differential in long term contracts. For starters, our view is that if such a differential continues to be used in place of physical rubber prices assessments in contracts, the value of the differential should be negotiated on a monthly average basis
Arusha – That’s insightful. How would you then suggest market participants use this analysis to their benefit?
Alvin – As you mentioned previously, we understand how important this differential is to the rubber industry, especially during contract negotiations. It affects their profitability immensely. That’s the main reason why we introduced this research piece and we plan to update it regularly moving forward.
I think the moving average analysis on these differentials will act as a particularly good guide on how this differential will behave in the short and long term. Understanding how these differentials will move, in my opinion, will help market participants plan their purchasing schedule and negotiate their contracts better.
Arusha – How about the intra-regional physical rubber spreads and spreads between physical rubber and raw materials. What can you share about this analysis?
Alvin – First, the Helixtap STR20 and Thai raw mat price spread, a proxy for margin, is trading within a narrow range for the past four weeks. In fact, this is the lowest range seen in any month since Helixtap launched regional raw mat assessments in September 2021. Low range suggests low relative level of volatility. This suggests there is more pricing flexibility for Thai STR20 producers to potentially adjust prices downwards with a proportionally smaller impact on margins. However, it must be noted that such a margin analysis does not take into consideration various operational and production costs incurred by the rubber manufacturer. Appreciation of the US dollar against these regional currencies will add on further to this pricing flexibility.
Margin analysis aside, we also observed that the STR20 prices tend to fall less than SIR20 prices during wintering months from February to May each year.
Arusha – So one could expect on average that the STR20 prices will have more price support than SIR20 prices from February to May each year ??
Alvin – Yes, that is what the seasonality analysis is suggesting. Again, I think these nuggets of information would be useful for market participants to use it as a guide in their internal analysis or contract negotiations
Arusha – Thanks Alvin. This information would surely help market participants make an informed decision. To find the detailed version of the analysis of the above please check-out, Helixtap Physical Rubber and Futures Price Analysis and Helixtap Physical Rubber and Futures Monthly Differential Historical Analysis in the market insights segment of www.data.helixtap.com. You just need to create a free account with us to have full access to the analysis.
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