Malaysia’s rubber prices may fall as China carmakers gear down
KUALA LUMPUR, May 30 — Rubber could well be the first Malaysian commodity to be hit by the economic slowdown in China, the world’s biggest car market, and Europe’s struggle to contain its debt crisis.
Bloomberg reported yesterday that rubber stockpiles have been climbing above 200,000 tonnes since November at China’s Qingdao port, the main hub for the commodity, citing the Qingdao International Rubber Exchange Market.
“Demand from downstream tire makers [sic] seems to be weak at the current stage, so destocking has slowed down,” the international business wire quoted the exchange chairman Li Xiangou as saying.
The world’s second-biggest economy has grown over the years to become Malaysia’s biggest trading partner with total exports jumping to 13.1 per cent last year from 3.7 per cent in 2000.
Malaysia, together with Thailand and Indonesia control about 70 per cent of the world’s supply of rubber.
Malaysian rubber exports to China, used primarily to make tyres and gloves, totalled 43.2 per cent last year, significantly higher than its 3.6 per cent export to the US or to the European Union (25.2 per cent).
Malaysia also exports 21.9 per cent of its palm oil to the Asian giant, compared with 5.7 per cent to the US.
RHB Research Institute suggested that a 10 per cent decline in exports to China could push down Malaysia’s gross domestic product (GDP) by 1.2 per cent due to rising linkages.
“This suggests that a slowdown in the Chinese economy will likely have a greater impact on these exports both in terms of volume and prices, and will likely affect Malaysia’s rural household spending as well as the government’s coffers,” it said in an analysis released Monday.
Bloomberg reported Qingdao International Rubber Exchange chairman Li saying that about half the stockpiles at the port may be tied up in so-called financing deals where importers use the rubber as collateral, after China’s government cut the amount of cash lenders must set aside as reserves for the third time in six months.
“Some companies are using rubber imports as collateral to bypass loan restrictions to get access to bank credit, which has led to persistently high port inventories,” Bloomberg quoted Li as saying today.
“Such practices exaggerate demand because these importers haul in shipments from Southeast Asia for which they don’t have ready buyers,” he added.
Rubber fell nearly 30 per cent on the Bloomberg China Futures List index last year, cutting costs for major tyre makers Bridgestone Corp, Goodyear Tire & Rubber Co and Michelin & Cie, the wire service reported today.
The price slide was due to China’s 1.3 per cent drop in car sales for the first four months, its worst performance since 1998, according to the China Association of Automobile Manufacturers.