The Year of Confusion (and Suspicion??)

When it comes to the new season of rubber, people wonder what the rubber market should be for this new season as everything seems to go wild.

Now that every player in the rubber market knows well he cannot follow the nature fundamentals any more.  The seasonal index seems not to work well enough to follow.  The instinct of speculative traders is likely to come into place.  People at supply market side or fundamental side was losing a huge stake in futures market as rubber price did not go the way it should be.

There are several factors which come into play.  They are all U factors.

1.  The Unanticipated Upraise of Oil Price in the World Market. 

The rubber price is positively correlated to the oil price.  It is no wonder that rubber price would follow closely to the skyrocketing oil price during the early year until now. 

Therefore when people may expect oil price to go beyond USD200/barrel, why not the rubber price to make a new highest record?  Y350 target may be realized if oil price is still riding on the hot temperature.

2.  The Uncontrollable Raining Early Off the Season.

During the new tapping season of rubber, there should be a peaceful gap for a farmer to tap in open sunshine.  However, it broke what we expect again by the early rains before the proper timing of raining season. 

Not just early, but so heavy.  Heard of the strong tropical Cyclone Nargis that caused the worst natural disaster in Burma during May, 2008?  The influence of its strength caused heavy and continuous rains over the scope of natural rubber planting areas.  This spoiled the tapping yields and retarded the latex collection nearly two months until it connected to the coming raining season in late June. 

And now we are in the perfect raining season.  Doubtless to say, the natural rubber supply market is still facing the shortage of raw materials that cash is the only way to ensure for raw materials stock into a barn.

3.  The Understock of Rubber in China and Japan. 

China and Japan had built up the rubber stock since February and March in order to handle the close of rubber tapping season during March to May.  When they used up to lesser rubber stock during March and April and when they came to face up with the high price of rubber during May, they slowed down the rubber purchase in order to investigate the rubber situation. 

The prolonged period of investigation made things worse when the remaining rubber stock was used up more and more.  Furthermore, the increase of China automobile export put pressure into the buy of rubber at higher price.  And while the Olympic Games is around the corner, the rubber consumption on everything containing rubber use makes it no way out to import rubber now. 

July rubber sale proves itself as one of the busiest months for rubber trade.  While the rubber demand is still fresh and young, the rubber supply in market seems to be in the womb.

4.  The Unexpectability Factor

Connecting to the high price during May, all rubber factory users ran up to lesser of the rubber stock while the price was still on unexpected high level (around USD2,800/MT).  They lingered to buy more and expected that price would go down when the new rubber tapping season opened again.  Things went wild and differently.  Rubber price went up and up …. and up. 

When it was USD2,600, the buyer thought this was high already, it would not be higher.  When it was USD2,800, last year highest rubber price level, the buyer were surprised and thought (again), this should be the roof of the rubber price level, it would come down for sure.  Then the unexpectability factor has attacked everyone in the market that rubber price arose and shone to USD3,300.  Now the rubber price is resting at USD3,100 – 3,200; waiting for everyone to spend lots of money to buy at this level unwillingly.

You’re the goal-keeper at penalty shoot-outs.  The first 4 shooters strikes at your left side and you missed all.  Now the fifth shooter is at the penalty point.  You wrestle with yourself in your mind, will he shoot again at the left side?  No he will not.  It should not be 5 straight left-side shots. Never will it be!  Impossible!  So you slide to the right.  You miss it again.  Your team loses.  It is a mind game.  It is what has happened during this year.

When everything goes against what has been expected, people seems to be intrinsically panic.  The degree of confidence in rubber knowledge seems to fall down.  This is the year of confusion.  Or should we call it this is the year of suspicion.  The question is how long it will continue this phenomenon?  Would it be so strong that it overpowers the prevailing increased stock during the year-end?  The month of August can be a good beginning sign revealed of the battle field.

I foresee the unexpectability factor will not battle against the increasing stock availability, but it will make use of it!

You follow the next article to come :  Unexpectability Vs Availability.