In 2007, the Chinese rubber market experienced a relatively relaxed supply-demand relationship, with rising inventories and increased supply pressure. At the same time, the U.S. dollar's depreciation and global geopolitical tensions pushed oil prices to record highs. The continuous rise in production and import costs further fueled the upward trend in rubber prices. This trend persisted into 2008, with no signs of abating. As a result, it was expected that rubber prices in China would remain at high levels throughout the year, showing significant fluctuations. The annual average price was projected to stay around 15,000 yuan.
From a macroeconomic perspective, four key factors supported the high-level operation of the Chinese rubber market in 2008: first, strong domestic and international demand. China’s economy continued to grow rapidly despite tighter monetary policies in 2008. Expected GDP growth was around 11%, industrial output grew by 12%, and fixed asset investment rose by 20%. Globally, although economic growth slowed, it remained robust, with an estimated 4% growth. China's rubber exports were expected to exceed 20% growth, reflecting strong consumption both domestically and abroad. This demand supported increased rubber production and helped transfer higher costs to consumers.
Second, rising production costs played a major role in driving up rubber prices. Raw material, energy, logistics, interest rates, environmental compliance, and labor costs all surged in recent years, leading to a period of rapid cost increases in China. These costs were eventually passed on to consumers, pushing prices higher. In 2008, several factors exacerbated this trend, including sustained high oil prices (expected to reach $80–$100 per barrel), increased shipping costs, higher import prices for natural rubber, stricter environmental regulations, rising wages, and potential interest rate hikes. These pressures contributed to a further increase in the floor price of rubber.
Third, the continued depreciation of the U.S. dollar also supported higher rubber prices. With the U.S. facing large budget and trade deficits, the dollar weakened, increasing the cost of imported goods, including rubber. This dollar weakness had a direct impact on China’s import prices.
Fourth, excess liquidity in the market added to the volatility. While cost increases and dollar depreciation were the main drivers, speculative funds also played a role. With strong global demand, rising costs, and geopolitical uncertainty, investors poured money into commodities, pushing prices even higher. China’s growing trade surplus and foreign exchange reserves, along with volatile stock markets, led to increased speculative activity in the rubber market, creating a speculative premium.
Despite these supportive factors, the market faced uncertainties. Prices had already reached high levels, with natural rubber above 20,000 yuan and synthetic rubber near 19,000 yuan, raising concerns about potential corrections. The U.S. subprime mortgage crisis and high oil prices posed risks of a global economic slowdown, which could significantly impact demand. Additionally, increased natural rubber production in Southeast Asia and China’s limited import growth created potential selling pressure. These factors made high price volatility inevitable.
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