Rubber and No. 20 rubber futures contracts extended their upward momentum on Thursday, September 24, with No. 20 rubber and butadiene rubber main contracts climbing over 4%, while natural rubber main contracts advanced nearly 2% as of the time of writing. A consensus among multiple institutional analyses attributes this rally to a confluence of bullish factors, including expectations of shrinking production capacity cycles, the ongoing impact of El Nino weather disruptions, and accelerating inventory drawdowns at bonded warehouses.
Supply-side pressures: shifting capacity cycles meet weather disruptions, keeping raw material prices firm
From the supply perspective, Xinhu Futures highlights that major Asian producing regions have not expanded plantings for over a decade, leading to aging tree demographics. Meanwhile, downstream rubber processing and tire manufacturing capacity continues to grow. Combined with a stronger-than-usual El Nino event this year, the probability of reduced output has risen, and a supply gap in natural rubber capacity is beginning to emerge, making prices significantly more sensitive to weather conditions.
CITIC Futures notes that rubber trees require roughly seven years from planting to tapping, reach peak production between 8 to 15 years of age, and gradually enter decline after 25 years. The world's currently productive rubber plantations are predominantly from trees planted around 2010 to 2015, with young trees aged 0-7 accounting for only 12%-14% of the total area—well below the industry's healthy benchmark of 25%. By around 2030, when these prime-age trees sequentially enter their declining phase, new plantings will not be able to fill the gap. Capacity contraction is not a hypothetical scenario; it is already underway.
CITIC Futures further points out that since 2024, rubber production has shown growing tolerance to high prices. Whether during output ramp-up phases or relative low-yield periods, raw material prices have exhibited a pattern of not falling when they should—high prices no longer effectively stimulate additional supply. This shift itself serves as a critical signal for a bull-to-bear market transition. On the weather front, the current super El Nino expectation continues to intensify, with rainfall in southern Thailand's Surat Thani and Songkhla regions down 58% compared to the same period last year.
Demand-side weaknesses: tire operating rates decline as pre-holiday stocking winds down
On the demand side, data from Longzhong Information shows that as of September 17, the operating rate for all-steel tires stood at 58.26%, down 3.99% from the previous week and 6.70% lower year-over-year. The operating rate for half-steel tires was 64.70%, down 0.64% week-over-week and 9.88% lower compared to the same period last year. According to the China Natural Rubber Association, all-steel tire inventory turnover stands at 36.4 days, while half-steel tires are at 44.7 days, indicating considerable finished product inventory pressure for rubber tire manufacturers.
Although domestic tire companies have successively issued price increase notices ranging from 2% to 5%, weak orders from heavy trucks and passenger vehicles at the terminal level are hindering price pass-through. Tire processing margins remain under pressure, with factories maintaining procurement on a need-only basis and showing little appetite for proactive inventory building. Holy Futures notes that with the Mid-Autumn Festival and National Day holidays approaching, some tire companies have scheduled maintenance shutdowns and output reduction plans, suggesting short-term raw material procurement demand is unlikely to expand significantly and will provide limited support for natural rubber prices.
Cofco Futures believes that from a demand perspective, both heavy truck sales and tire factory operating rates have weakened, but demand itself rarely dictates rubber prices. Recent demand has not shown any dramatic outperformance. Data from the First Commercial Vehicle Network indicates that China's heavy truck market sold approximately 83,000 units in August, a marginal 1% decline from July and a 9.4% drop compared to the 91,600 units sold in the same month last year.
Regarding inventories, Longzhong Information statistics show that as of September 20, combined bonded and general trade inventory of natural rubber in the Qingdao region stood at 585,400 tons, down 17,800 tons from the previous period, a decline of 2.96%. Bonded warehouse inventory decreased by 12.56% to 61,000 tons, while general trade inventory fell 1.70% to 524,300 tons. The inbound rate for Qingdao's natural rubber sample bonded warehouses increased by 3.16 percentage points, while the outbound rate rose by 9.54 percentage points.
Institutional outlook: strong expectations versus weak reality, high-level consolidation ahead
CITIC Futures believes the core logic supporting rubber prices remains unchanged—the supply-side capacity cycle is transitioning from expansion to contraction, and El Nino weather is adding fuel to this process. However, in the near term, demand has not kept pace, and absolute inventory levels remain elevated, making it challenging for the market to aggressively push toward the 20,000 yuan threshold.
Cofco Futures suggests that while the long-term structural outlook for rubber is supported by the capacity cycle shift and Thailand currently faces tight supply conditions, the magnitude or duration of this corrective phase may not yet be complete. The most significant fundamental issue remains the absence of new catalysts; supply-side narratives have been repeatedly traded by the market, and while demand has weakened, it has never become the core variable driving price movements.
Holy Futures argues that natural rubber's fundamentals are transitioning from the earlier weather-driven dominant phase to a reality-check stage characterized by supply release growth and demand absorption capacity. Near-term weather disruptions in Southeast Asian production areas have not fully subsided, raw material prices remain relatively elevated, and ongoing inventory drawdowns at Qingdao port provide support for rubber prices. Nevertheless, as major producing regions gradually enter peak production cycles, domestic tire operating rates have declined, and pre-holiday demand appears weak, the upside momentum for rubber prices has significantly weakened compared to earlier stages. The near-term outlook points to high-level range-bound consolidation for natural rubber.
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