Report: NR Demand Weakening in China, Inventories Rise - Tire Review Magazine

Report: NR Demand Weakening in China, Inventories Rise

Bloomberg reports that significantly reduced demand by domestic tiremakers has resulted in expanded natural rubber stockpiles at the country’s main rubber and finished tire port.

The Qingdao International Rubber Exchange Market told Bloomberg that, “Demand from downstream tiremakers seems to be weak at the current stage, so destocking has slowed down,” said exchange chairman Li Xiangou.

Li, who foresaw the downturn, according to Bloomberg, said NR futures have fallen 50% from record prices set in February 2011.

Most of the demand issue has risen from a downturn in China’s auto market, which is off 1.3% through the first four months of 2012, and the European debt crisis, which has caused worry across many sectors in China.

China’s tire and auto markets have “yet to come to terms with a scenario where Chinese demand is diminishing faster than anticipated,” according to Wang Chen, head of research at Hangzhou Dunhe Investment Co. “Weak auto sales in China, especially falling sales of trucks, coincide with a lackluster market in the U.S. and Europe, and may lead to a glut of the commodity that hasn’t yet been reflected in prices.”

According to Bloomberg, NR inventories at the Qingdao port “have stayed above 200,000 tons since November when they exceeded that level for the first time.” There was some destocking in March and early April, but it slowed down since the beginning of this month, Li said.

There are reports that NR inventories in Japan are also rising. Inventories of NR held at Japanese warehouses “gained 2.9% to 15,198 tons as of May 10, according to the Rubber Trade Association of Japan.”

Perhaps 50% of the Qingdao NR inventories may be tied up in funding deals, said Li. “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,” he said. “Such practices exaggerate demand because these importers haul in shipments from Southeast Asia for which they don’t have ready buyers.”

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