Malaysia's natural rubber output fell 8.1% in January from a year earlier, official data show, although weak exports tracking sluggish global demand and swelling inventory will likely limit further price gains.
Natural rubber production totalled 75,132 tons in January, according to latest data from the country's Department of Statistics. That compares to 81,754 tons recorded in the same month last year. Natural rubber output was 73,584 tons in December. Analysts say persistent global oversupply amid lackluster demand for the commodity particularly from China is keeping a lid on optimism despite a recent rebound in rubber prices. Latex prices recently climbed as production enters the seasonally-low wintering period from February to May. Wintering period refers to several weeks during which the rubber trees shed their leaves and yield drops sharply during the period.
The automotive sector, which consumes 70% of world rubber output, remains soft in-part due to weak demand in China, said CIMB Investment Bank analyst Ivy Ng. Low prices of crude oil, the principal raw material used manufacturing of synthetic rubber, also weigh on prices of natural rubber, she added.
Exports of natural rubber from Malaysia plunged 26% at 51,503 tons in January from a year earlier, the Statistics Department said. Shipments fell 4.9% in January when compared to December. In terms of markets, China was the main buyer of Malaysian rubber, accounting for 41% of the total exports.
Natural rubber stockpile meanwhile surged over 19% year-on-year to 222,597 tons in January and was 25% higher compared to December.
Prices of latex had recently risen to about 3.97 ringgit a kilogram from its year-to-date low of 3.24 ringgit a kilogram.
"Nevertheless, we believe that any recovery in latex prices would likely be temporary and we expect latex prices to ease back" below 4.00 ringgit a kilogram once the wintering period ends, said UOB Kay Hian analyst Lester Chin.
Still, some of the world's largest rubber glove makers, which are based in Malaysia, aren't likely to witness any potential expansion in profit margin due to lower raw material costs as a strengthening ringgit could erode the value of their overseas sales, said Chin.
Prices of natural rubber have declined more than 25% in 2015, forcing many rubber growers in Southeast Asia to abandon their plantations or switch to other activities as continued farming operations result in losses.
To help prop up rubber prices, the International Tripartite Rubber Council has recently agreed to cut export by 615,000 tons for the six months beginning March 1. The council comprises Thailand, Indonesia and Malaysia, which collectively account for more than 60% of the global rubber output.
"Market players are expected to be cautious in view of the uncertainty over the China economy, crude oil prices and ringgit movements," according to Malaysia's Rubber Board's official February newsletter published last week.
The ringgit, which slumped more than 20% against the U.S. dollar last year, has gained nearly 5.0% against the greenback so far this year, thanks in-part to some recovery in crude oil prices.
"Most glove makers reckon the near-term operating landscape remains conducive as long as the ringgit stays at above" 4.00 against the U.S. dollar, said UOB Kay Hian's Chin. He has a Hold call on Top Glove, the world's largest natural rubber glove maker by volume, but recommends investors to sell Hartalega Holdings, its smaller rival which makes the synthetic variant.
Shares of Top Glove fell 2.2% at 5.32 ringgit, adding to the 21% year-to-date loss, while Hartalega ended Monday flat at 4.71 ringgit, with the stock losing 20% so far this year. The benchmark FTSE Bursa Malaysia KLCI rose 0.2%, lifting this year's gain so far to 0.5%.
