Rubber Price Drops, Tire Hike Ends

Rubber Prices Fall: Multiple Negative Factors Converge to Pressure

On September 23rd, natural rubber prices fell below 15,000 yuan/ton, a significant decline from the high of 17,855 yuan at the beginning of the year. The core drivers were a reversal of supply-side expectations and shifting policy signals.

From the supply side, expectations of seasonal production increases have become the core rationale for bearish betting. The market generally expects that major producing areas in Southeast Asia and China will enter their traditional peak production period from latex to October. Supply from Yunnan has gradually increased, and despite typhoon disruptions in Hainan, the overall upward trend is clear.

More importantly, the unexpected sales of state reserves – previously, the market generally believed that state reserves had no full latex inventory. The actual sales plan had a direct negative impact on light-colored rubber prices, making the sales volume a key variable influencing short-term prices. Furthermore, the China-Thailand Mekong River rubber export pilot program is about to launch, and the zero-tariff policy may further ease forward supply, exacerbating market bearish sentiment.

Weak demand has exacerbated downward price pressure. Although Shandong's all-steel tire production capacity utilization rate has risen to a recent high of 64.87%, demand is being absorbed slowly at the end-user end. Downstream companies have little tolerance for high-priced raw materials, and procurement is limited to rigid demand, with a clear "wait and see" mentality.

Overseas markets are also under pressure. While the US tariff increase has not curbed imports, supporting order growth has been weak, and EU demand has declined slightly, making it difficult to provide a bottom line for demand.

Macroeconomic support has also weakened. Although we are in a period of precautionary interest rate cuts, historical data suggests a high probability of medium-term positive impact on rubber prices. However, the Federal Reserve's latest dot plot indicates a slowdown in the pace of rate cuts, cooling market macroeconomic optimism and reducing investor interest in risky assets such as rubber.

The price surge recedes: Tire companies face easing cost pressures.

The decline in rubber prices has directly ended the second wave of tire price increases this year, in stark contrast to the price increase logic at the beginning of the year.

The first wave of price increases from the beginning of the year to March was driven by a 33.89% year-on-year increase in natural rubber prices, coupled with rising prices for raw materials like carbon black. This increased the raw material cost of a single 12R22.5 tire by approximately 55 yuan, forcing Chinese and foreign companies like Michelin and Linglong to collectively raise prices by 3%-10%.

The second wave of price increases, brewing in July and August, was initially driven by tight supply and demand signals, including Thailand's production failing to increase as it should have and domestic inventories falling to 1.235 million tons. However, with rubber prices falling below cost support, the basis for price increases has disappeared.

Currently, tire companies are facing significantly less cost pressure. Natural rubber accounts for approximately 40% of tire production costs, and every 1,000 yuan/ton drop in price reduces the cost of a single tire by approximately 20-30 yuan.

Coupled with the recovery of synthetic rubber operating rates to over 75%, ample supply has further reduced substitution costs, completely fading the motivation for price increases. Judging from the market reaction, no major companies have announced price increases since August, and some small and medium-sized distributors have even begun offering discounts to mitigate risks.

Market Outlook: A Bull-Bear Game in a Volatile Market

In the short term, the natural rubber market will remain volatile, with pressure from above and support from below. On the negative side, factors such as the release of supply during the peak production period in October, the expected increase in dark rubber inventory, and the realization of stockpiling will continue to suppress prices. However, supporting factors also exist.

Rainfall in northeastern Thailand and the typhoon in Hainan may affect actual production, the appreciation of the Thai baht will increase import costs, and the 1.235 million tons of social inventory remains relatively low.

For the tire market, cost easing is expected to improve corporate profits. Previously, companies such as Guizhou Tire experienced a 7.24 percentage point year-on-year decline in gross profit margin due to rising raw material prices. If rubber prices remain low, industry profitability may gradually recover. However, uncertainty on the demand side remains a concern.

The "Golden September and Silver October" peak season is likely to be subpar, and the withdrawal of the new energy vehicle purchase tax exemption policy may prematurely overdraw fourth-quarter demand. These factors will limit the potential for profit recovery for tire companies.

In the long term, the supply ceiling caused by the shift in the rubber production cycle and the increase in demand driven by the increasing penetration of new energy vehicles at the end-user end will remain the core contradictions determining market trends. Investors should focus on October's actual production data, the implementation of stockpiling, and automobile production and sales data to identify trend reversals within the volatile market.