From the producer side, all top four natural rubber producers experienced declining performance. Natural rubber export quantity from Thailand, Malaysia and Vietnam decreased 11.3 percent yoy, 8.3 percent yoy and 54.4 percent yoy respectively from January to April. Similarly, Indonesia’s natural rubber export quantity declined 13.6 percent yoy to only 0.9 million tons in the January to May period.

Furthermore, the Association of Natural Rubber Producing Countries (ANRPC) has revised down its natural rubber supply and demand projection for the fourth time this year. The ANRPC’s natural rubber production forecast is 0.3 million tons lower than their previous forecast, a decline of 4.7 percent to 13.1 million tons in 2020. Additionally, natural rubber demand is expected to fall 6 percent to 12.9 million tons this year. Higher production than demand means that the pressure on the natural rubber price will likely continue in 2020.

Weakening automotive sector performance takes its toll on natural rubber demand because more than 50 percent of natural rubber demand comes from the automotive sector. Car sales in China, the US and Japan from January to May all slumped 22.7 percent yoy, 22.9 percent yoy and 19.2 percent yoy respectively. Based on this, Moody’s projects global car sales will decline 20 percent this year and rise 11.5 percent in 2021 then continue recovering at a slower pace. In addition, Indonesian car sales performance is also affected by the pandemic and already declined 41.2 percent yoy in the period from January to May. Furthermore, the Association of Indonesian Automotive Manufacturers (Gaikindo) sees that domestic car sales will drop 41.7 percent to only 600,000 units this year.

Theoretically, in a time of crisis such as we are in now, people tend to spend their money more on basic physiological needs, especially food. The excess income will rather be spent as savings for uncertain and emergency events. The increasing unemployment rate also impacts people’s purchasing power. Therefore, consumers are less likely to buy cars or other durable goods.

The behavior shift that leads toward more virtual activities will also impact the fundamental demand for vehicles. The increasing trend of working from home and stay-at-home activities is also limiting the need for transportation. Therefore, the gloomy outlook for the automotive industry will likely remain, or at least the industry will never be the same as before COVID-19. Consequently, natural rubber demand will mostly follow the declining automotive trend this year and moderately recover next year.

The declining demand is also reflected in a decreasing natural rubber price. The price of technically specified rubber (TSR) 20 at the Singapore Commodity Exchange on July 3 was US$1.16 per kilogram, a fall of 20.1 percent year to date (ytd). The average price of TSR 20 in the first half of 2020 was $1.22 per kg, lower than the same period last year when it was $1.46 per kg. The natural rubber price will likely continue to be highly volatile throughout 2020, especially following the crude oil price volatility.

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