In 2007, the Chinese rubber market experienced a relatively relaxed supply-demand balance, with rising inventories and increased supply pressure. At the same time, the depreciation of the U.S. dollar and geopolitical instability pushed oil prices to record highs. The continuous rise in production and import costs further fueled the upward trend in rubber prices. This trend continued into 2008, with the key factors driving prices remaining strong, leading to expectations that rubber prices would remain high and volatile throughout the year. The annual average price was anticipated to stay around 15,000 yuan.
From a macroeconomic perspective, four main factors supported the high-level operation of the Chinese rubber market in 2008. First, domestic and international consumption remained robust. China's economy had maintained rapid growth for several years, and despite tighter monetary policies in 2008, major economic indicators were expected to remain strong. GDP growth was projected to reach or approach 11%, industrial output to grow by 12%, and fixed asset investment to increase by 20%. Globally, although economic growth slowed, it still remained strong, with an estimated global growth rate of around 4%. Demand for Chinese rubber products remained steady, and export growth was expected to exceed 20%, supporting strong demand and creating room for increased rubber production and cost transfer.
Second, production costs continued to rise. In 2007, rising raw material prices, energy costs, logistics, interest rates, environmental compliance, and wages contributed to higher production expenses. These trends persisted in 2008, with crude oil prices expected to remain high, potentially reaching $80 per barrel or even $100. Shipping costs also increased, and imported rubber prices rose. Energy-saving measures and wage increases further added to costs. With these pressures, the floor for rubber prices was expected to move higher.
Third, the U.S. dollar continued to depreciate. The U.S. faced large fiscal and trade deficits, and investor confidence in the dollar weakened. A weaker dollar boosted international rubber prices, which in turn increased China’s import costs. This factor played a significant role in maintaining high rubber prices.
Fourth, excess liquidity continued to accumulate. Although cost increases and dollar depreciation were the main drivers, speculative capital also played a key role. Large amounts of hot money flowed into commodity markets, pushing prices higher. China’s trade surplus was expected to grow, and foreign exchange reserves would continue to rise. Increased interest rates in China attracted foreign capital, while the stock market's volatility led to more funds entering the commodity sector, increasing speculative demand in the rubber market.
Despite the overall bullish outlook, uncertainties remained. Prices had already reached high levels, with natural rubber exceeding 20,000 yuan and synthetic rubber around 19,000 yuan, signaling increased risk. The U.S. subprime mortgage crisis and high oil prices could trigger a recession, slowing global growth and impacting demand. Additionally, increased natural rubber production in Southeast Asia, combined with stable import volumes, may lead to higher selling pressure on the market. These factors made high price volatility inevitable.
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