In the bull market, the planting area is hard to quit quickly in the bear market. According to the industry, although the price of natural rubber has rebounded this year, the producers will struggle for 10 years in the low price quagmire.

Although the price of international rubber futures has risen by 16% this year, it is still a long way from the bear market for rubber to really break away from.

From March 2009 to February 2011, rubber prices experienced a surge of 240%. Over a two-year price rise period, producers are also ramping up their planting areas. Now, as these rubber trees enter the tapping cycle from the growth cycle, excess supply becomes a problem that is difficult to eliminate in the short term. Although rubber prices have risen this year, they are still down as much as 70% from their 2011 high.

Bloomberg cited David Shaw, CEO of Tire Industry Research, which has focused on the rubber industry for 30 years, as saying that global rubber production will continue to exceed tyre demand by 2027-2028, and that countries will remain mired in low prices for another 10 years. With the reduction of planting area caused by low prices, it is possible that prices will rise sharply in 10 years.

Shaw believes that if rubber producers used 10 years as a cycle in their early years to predict future demand and decide on the planting area accordingly, there would be no current consequences and prices would be relatively stable. He pointed out that governments in rubber-producing countries should be more cautious in controlling planting areas in order to achieve a future supply-demand balance.

After 5-7 years of planting, the high yield period is 10-15 years, and the cutting and renovation period is 25-35 years. It is a relatively special commodity, the upstream is agricultural products, the downstream is industrial products, but also has a strong financial attribute.

Previous data from Hongyuan Futures Research Institute show that Thailand is the world’s largest producer, accounting for 36% of global production. China accounts for nearly 40% of global natural rubber consumption, more than 70% of which is used for tire manufacturing, but the growth rate of tire production in China has fallen from 20% in 2010 to 5.4% in 17 years.

Faced with the mismatch between supply and demand, it is difficult for natural rubber to reduce production on a large scale like crude oil. Salvatore Pinizzotto, secretary-general of the International Rubber Research Group, said that for rubber producers, because they lack other sources of income, they need to continue production even at low prices, which will further aggravate the oversupply.

Zhu Ziyue of Hongyuan Futures Research Institute has also pointed out that planting often flocked to the top in bull market and planting area was difficult to quit quickly in bear market, which made rubber inventory pressure difficult to ease. He mentioned:

First of all, the natural rubber growth cycle and tapping cycle are longer, the existence of a long cycle leads to the production and inventory can not be timely adjusted, planting in the bull market is often crowded up, planting area in the bear market is difficult to quickly withdraw.

Secondly, 90% of the global rubber production areas are located in Southeast Asia, which is operated in the form of small farms and distributed dispersedly. Moreover, the policy implementation in this area is weak, and it is difficult to achieve a unified and compulsory supply-side reform similar to that in China.

Finally, rubber cutting is the economic source for rubber farmers to survive, and the maintenance cost of rubber plantations is low. Although there is a phenomenon of replacing planting or choosing other occupations, there is still no other way to provide stable cash flow for rubber farmers, so rubber farmers will not easily choose to abandon or cut down.