Rubber Supply in Focus as El Niño Boosts Sentiment but Correction Risks Loom

Medan, September 18, 2026 — The natural rubber market has remained under pressure from concerns over supply in Southeast Asia over the past week. Growing expectations of an El Niño weather pattern have increased market attention on the risk of lower production, particularly as the phenomenon could coincide with the peak tapping season in several major producing countries.

However, the earlier rise in rubber prices has not been fully supported by a fundamental improvement in demand. The market is currently placing greater emphasis on the potential for supply disruptions in the fourth quarter of 2026 and early 2027. This has made the weather premium an important factor in price formation, while also creating a risk of correction if concerns over production losses fail to materialize.

El Niño Raises Concerns Over Southeast Asian Production

Strengthening El Niño expectations are drawing attention because Thailand and Indonesia, two major rubber-producing countries, could face higher temperatures and drier conditions.

Rubber trees require warm and humid conditions to support latex production. Prolonged drought can reduce latex secretion and the number of effective tapping days. In extreme conditions, weather disruptions can also increase the risk of diseases and pests affecting rubber trees.

The issue is particularly important because rubber plantations across Southeast Asia generally have relatively aging trees, while new planting areas remain limited. This reduces the flexibility of supply to respond when weather disruptions occur.

Nevertheless, there is currently no data indicating a large-scale decline in production. The market is instead pricing in the possibility of lower output during the fourth quarter of 2026 and into early 2027.

Qingdao Inventories Continue to Decline

On the inventory front, recent developments have provided some support to the market. Natural rubber inventories in China, including bonded stocks in Qingdao, declined gradually during July and August 2026.

As of August 30, 2026, total natural rubber inventories in Qingdao, covering both bonded and general trade stocks, stood at around 627,700 tonnes. The figure was down 3,800 tonnes week-on-week and 40,400 tonnes from the previous month.

However, the decline in inventories does not necessarily indicate a sharp increase in terminal demand. The destocking trend has been attributed mainly to a marginal contraction in overseas supply, while downstream consumption has yet to show a stronger-than-expected improvement.

This means the rubber market remains in a fundamental environment where supply and demand have not yet fully come into balance.

Tire Demand Has Yet to Fully Recover

In the downstream sector, tire manufacturers continue to focus mainly on purchasing according to actual requirements. Large-scale active inventory replenishment has not yet become widespread.

The market nevertheless expects the traditional September-October peak consumption period to support a recovery in tire and vehicle demand.

At the same time, higher synthetic rubber costs have improved the relative competitiveness of natural rubber. Geopolitical disruptions in the Middle East and higher oil prices have increased synthetic rubber production costs, prompting some tire manufacturers to adjust their formulations and increase the use of natural rubber as an alternative.

The development has helped strengthen market sentiment, although it has not eliminated concerns over relatively weak actual demand.

Higher Prices Encourage Tapping Activity

Relatively high rubber prices are also providing producers with greater incentives to increase tapping activity.

In Vietnam, natural rubber production reached 308,000 tonnes in the second quarter of 2026, up 5 percent year-on-year. First-half production reached 440,000 tonnes, an increase of 3 percent and the highest level recorded during the 2021-2026 period.

Higher rubber prices since the beginning of the year have been one of the factors encouraging growers to increase tapping activity.

However, this has not eliminated concerns over the next production season. If El Niño genuinely reduces tapping yields in Southeast Asia, the market could face tighter supplies heading into 2027.

SHFE Movement Also Reflects Market Sentiment

The positive sentiment was also reflected in rubber trading on the Shanghai Futures Exchange (SHFE). On September 7, the RSS3 2701 contract rose 2.18 percent to close at RMB19,180 per tonne.

The move reflected growing market attention to potential supply disruptions and weather-related risks in producing regions.

However, developments on the SHFE should be viewed as part of broader regional market dynamics. For Indonesia, SICOM TSR20 remains an important reference for assessing the direction of rubber prices.

The Market Begins to Test the Strength of the Rally

Futures market movements indicate that some of the weather-related risks have already been incorporated into prices.

This suggests that part of the expected production decline has already been priced in by market participants.

As a result, further price gains will not depend solely on trading sentiment. The market will require confirmation from rainfall patterns, plantation conditions, the number of effective tapping days and actual production data from major Southeast Asian producing regions.

Correction Risk Emerges if Production Remains Resilient

The risk of a correction has become a consideration because the previous rally was driven significantly by expectations.

If rainfall improves in major producing regions and the drought risk diminishes, the weather premium already reflected in prices could decline rapidly. Under such circumstances, the market could once again focus on underlying demand, which remains relatively subdued.

Pressure could also come from tire manufacturers, whose margins remain under strain. Excessively high raw material prices could limit their ability to make aggressive purchases.

Meanwhile, weaker vehicle consumption in China and the United States remains a risk to global rubber demand.

Production Data to Determine the Next Direction

Against this backdrop, the rubber market is entering an important phase. El Niño has become one of the key factors supporting market sentiment, but the market now needs evidence that weather disruptions are actually affecting production.

If production data confirms a decline while weather conditions continue to support supply concerns, the fundamental supply outlook could strengthen further.

Conversely, if rainfall improves and tapping activity remains high, expectations of lower production could fade, creating greater room for a price correction.

For now, market attention is therefore focused not only on price movements on the futures exchanges, but also on developments in weather conditions and rubber production across Southeast Asia. Changes in these two factors will be important indicators in determining whether the previous rally has sufficient fundamental support or is beginning to face correction pressure.