China's Rubber Price Jumps Past 20,000 Yuan as Tire Makers Struggle
On the last trading day of September, the most-active natural rubber contract on the Shanghai Futures Exchange settled at 20,095 yuan (about $2,800) a tonne, up 1,055 yuan, or 5.54%, on the day. It was the first time the Shanghai rubber price had closed above the 20,000 yuan mark since March 2017.
The move was sharp enough to lift shares of rubber producers. Hainan Rubber, a state-backed plantation company listed in Shanghai, opened five seconds after the bell and stayed locked at its daily limit of 10%, closing at 6.37 yuan a share. For a commodity that had spent years in the doldrums, the rally looked like a turning point.
Downstream, the picture is far less cheerful. In Shandong province, China’s tire-manufacturing heartland, factories were using only 48.68% of their all-steel radial tire capacity, according to industry tracking data cited by Caixin’s WeChat account Tingfeng Yima. That was 6.68 percentage points lower than a year earlier. In other words, the factories that turn rubber into tires are buying less, not more.
The squeeze shows up in the arithmetic. Tire makers have issued price-increase notices of around 5% to distributors, but their own cost sheets tell a different story: the cost of raw materials has climbed by roughly 25%. Producers are absorbing the difference, and margins are thinning fast.
Several forces are behind the run-up. Rubber plantations in Southeast Asia and southern China have faced weather disruptions, and supply has been tight. Speculative money has also been flowing into commodities, chasing stories of tighter supply and a weaker dollar. At the same time, the Chinese government has been encouraging consumption and infrastructure spending, which has lifted expectations for heavy-truck demand, even if actual orders have yet to follow.
The mismatch between futures prices and physical demand is a familiar feature of China’s commodity markets. Traders often price in future demand before factories feel it. For tire makers, that means a painful period of high input costs and soft orders. Many are small and medium-sized enterprises with limited ability to hedge, and some may be forced to cut production further.
The broader economy adds context. China’s auto market has been growing, but much of the growth is in electric passenger cars, which use different tires and different supply chains. The heavy-truck segment, which consumes the most natural rubber, has been slower to recover. Construction and logistics activity remain uneven, and exports of tires face trade barriers in several markets.
For investors, the rubber rally is a reminder that commodity prices can detach from the real economy for a while. Whether the 20,000 yuan level holds will depend on whether factory utilization picks up in the fourth quarter, and whether the weather in producing regions cooperates. For now, the market is pricing hope, while the factories are counting costs.