This article first appeared in The Edge Financial Daily on September 14, 2017

KUALA LUMPUR: If technical analysis is to be trusted, rubber prices are likely to continue rising in the near term and may breach this year’s heights in 2018, say analysts.

“Current prices appear to be at the beginning of a bullish trend,” said Jupiter Securities chief market strategist Benny Lee at the Global Rubber Conference 2017 yesterday.

With reference to the movement of the Tokyo Commodity Exchange futures for rubber (Tocom), he projected that rubber prices are likely to breach the ¥278 resistance level next year and may see the same heights reached earlier this year of over ¥340.

Yesterday, the Tocom ended higher for the third consecutive session, hitting a near one-week high of ¥232.5 (RM8.83) as the US dollar strengthened in comparison, Reuters reported.

Although prices have since shed most of their gains from earlier this year, Lee said that they had not fallen as low as earlier, indicating there could be higher floor set for the prices.

He added that Malaysian rubber prices, which are measured via the Standard Malaysian Rubber 20 (SMR 20), are likely to follow the trend of the Tocom despite minor exchange rate distortions.

The SMR 20 recorded a 32.53 sen increase in its average monthly price for July to RM6.35 per kg, according to data released by the Department of Statistics Malaysia yesterday. It hit a high of RM10.20 per kg in mid-January this year.

Meanwhile, production of natural rubber rose 8.7% in July to 54,994 tonnes compared with 50,614 tonnes in the month before, mainly due to higher contributions from the smallholding sector, the data showed.

Dar Wong, investment director at Singaporean Dektos Investment Corp, concurred that rubber prices are likely to trend upward as soon as next week, although he cautioned that any sharp increase in rubber prices is likely to see an equally sharp downward correction.

In a report yesterday, CIMB Research quoted the Malaysian Rubber Glove Manufacturers Association as saying that prices of latex tend to increase closer towards the International Tripartite Rubber Council meeting, which will be held tomorrow.

This was due to the anticipation of price-fixing and speculation, it said.

The conference was also told that world demand for natural rubber is expected to grow 1.2% to 12.38 million tonnes this year while world supply is expected to grow by 5% to 12.88 million.

Dr Nguyen Ngoc Bich, secretary-general of the Association of Natural Rubber Producing Countries, said China is expected to register the highest demand for natural rubber again in 2017 while Thailand remains its biggest exporter.

From 2018 to 2024, world consumption is projected to grow between 3.4% and 3.7% annually led by emerging markets, Nguyen said.

Malaysia, which is the sixth-largest exporter of natural rubber globally, is expected to see a total of 50,000ha planted throughout this year, he said, adding that some 700 tonnes of rubber is expected to be produced over a projected 545,000ha to be tapped in 2017.

Although projections of world supply and demand appear contradictory to the expected increases in natural rubber prices, Jupiter Securities’ Lee explained that the prices were largely affected by the US dollar exchange rates and oil prices instead.