Rubber rallies on wave of volatility

THE benchmark TSR20 Rubber Futures Contract, a widely traded commodity listed on the Singapore Exchange (SGX), has shown intriguing price movements recently. The global rubber market has experienced fluctuations fuelled by a combination of supply-side disruptions, pace of demand recovery in key sectors, and the weakening of the US dollar. As the market braces for a potential supply shortage, amplified by adverse weather conditions in top rubber-producing countries, volatility has become the hallmark of this rally.

Rubber demand is closely linked to the automotive sector, making the industry’s recovery a critical driver. While the broader outlook remains bullish, the sluggish recovery in China, a major importer, has tempered expectations. In August and early September, Chinese industrial production figures fell below forecasts, cooling demand and dampened the otherwise optimistic market sentiment. This confluence of factors has injected both opportunities and risks into the market, as traders navigate heightened volatility.

Since September 2023, SGX’s TSR20 Rubber Futures Contract has exhibited increasing price volatility, notably forming an ascending broadening wedge pattern – a classic signal of expanding volatility. This pattern is characterised by two upward-sloping trend lines that diverge over time, causing the price range to widen between peaks and troughs.

On Sep 16, prices broke above a key resistance level from the previous peak of 186.6 US cents per kg, which has now flipped to become an immediate support. Below this, a more robust support level sits at 180.0 US cents per kg – a significant threshold, not only psychologically but also as the 78.6 per cent Fibonacci retracement level from the June 2024 decline. This level also corresponds with notable price points back in 2021, reinforcing its importance. By mid-day on Sep18, the price of the active second-month contract for TSR20 rubber reached 195.8 US cents per kg, a price level last seen in early 2017. The strong bullish momentum, which began in August, has been confirmed by a surge in trading volume, suggesting an imminent new peak within the ascending broadening wedge.

As of Sep 18, the market has shown no signs of reversing, with traders eyeing a potential peak near the upper boundary of the wedge in the coming weeks. However, caution is advised. Prices could quickly retreat to the lower boundary of the wedge if the crucial support levels mentioned above are breached. A sharper sell-off may ensue if prices break below the lower boundary trend line, signalling a bearish reversal.

Zooming out, this rally aligns with the broader technical narrative: a mid-term double-bottom pattern that formed in April 2020 (first bottom) and October 2022 (second bottom), setting the stage for the current price surge.

Looking ahead, the outlook for SGX SICOM TSR20 Rubber Futures remains bullish, with the possibility of breaking above 200 US cents per kg in the short term. A swift climb to challenge this key resistance level is anticipated, keeping the market firmly in the spotlight.

The writer is commodities strategist at Phillip Nova