New China rubber standard likely to hurt major producers in Malaysia, Thailand

BEIJING: China has approved a new standard for compound rubber that cuts the amount of natural rubber allowed in the formula, a move that is expected hurt major producers in Thailand and Malaysia, analysts and traders said.

Compound rubber, which includes small amounts of powdered carbon, has become popular in China as it can be imported tariff-free, compared with a 1,500 yuan (US$242) per tonne tariff for natural rubber.

Thailand typically shipped about 600,000 to 700,000 tonnes of compound rubber to China, a Singapore-based trader said, while Malaysia exported slightly less. Total use is around 1.5 million tonnes.

The rule change by the world’s top rubber consumer, which was first proposed in August, will cap the natural rubber content in compound rubber at 88%, down from 95%–99.5% previously.

This would make the compound less stable and much less attractive to tyre manufacturers, likely killing off demand for the product, traders and analysts said.

The new standard will be implemented on July 1, said a notice published on the Standardisation Administration’s website.

“From July, the use of compound rubber will dramatically decline,” said Quan Shuwen, senior analyst at Dongwu Futures.

Producers are expected to ship large volumes of compound rubber into China ahead of the rule change but it is unclear whether they will produce the product after July.

The remainder of the compound must be made up of carbon black, a fine powder that is difficult for rubber producers to handle without installing special equipment.

Traders said the move would benefit Chinese rubber producers, such as Hainan Rubber Industry Group, although tyre companies would still need to source large amounts of natural rubber from overseas to meet demand.

China imported 2.3 million tonnes of natural rubber and 1.35 million tonnes of synthetic material in the first 11 months of 2014.

The country was expected to produce around 800,000 tonnes this year, said Quan, about 10% lower than expected after the domestic industry reduced tapping due to low prices and switched to growing other crops such as coffee.

The move comes as rubber prices hover close to five-year lows on adequate supply and fears over tepid Chinese demand, pushing producers in top exporting countries to call for government support.

Rubber demand in China remained lacklustre, traders said, with many tyre firms planning to start Chinese new year holidays early. — Reuters