Rosin Market Update, 8-26-13

Posted on October 1, 2013 by Ernest Spinner

We have been getting lots of questions about the cause of the Chinese gum rosin spike & where we could go from here.

First some background is needed to understand who controls what in China & where the price decisions get made.

Forests are owned by the local villages, who give their people the right to farm the forests as they see fit.  Some farmers tap the trees themselves, but some can make more RMB by doing other work, & they rent their allocation to others.  Some of the farmers who tap the trees don’t have the truck needed to take the oleoresin to the local rosin factory, so they then sell their oleoresin to brokers.  The brokers might also be the ones who buy villagers’ tapping rights allocations. Brokers buy at market prices & accumulate large quantities.  They could sell it to the rosin factories immediately, or hold it believing prices will go up.

There are many rosin factories, few of which are integrated on-site with rosin derivative plants.  Enter now a new set of intermediaries, the so-called ‘rosin bosses’.  These are typically very wealthy people, many of whom came up the farmer -> broker route.  They buy rosin from small rosin plants & sell to the derivative plants.  They can accumulate large quantities of rosin & at times have enough buying power &/or inventory held that they can engineer price movements.

In summary, Chinese rosin production is highly fragmented & there is no ‘business’.  There is just a long list of competing independent entities along a long supply line, each of whom has a relatively small part of the total, albeit the brokers & rosin bosses collectively have the largest influences.

After the 2010-2011 Chinese gum rosin price spike, some end users who could switch chemistries to hydrocarbon resins did so.  Some users, including many Chinese rosin derivative producers, switched at least part of their supply needs to Indonesian or other sources of rosin.

The producers of the alternate rosins are more concentrated, do not change their prices weekly & they run their operations as businesses.  So for all these reasons, demand for Chinese gum rosin is in fact down, but it still remains as the single largest single source of rosin in the world.

Entering this year’s crop season everyone thought the remaining 2011 stock + modest production from the 2012 crop would be sufficient to meet demands from Asia, India & modest EU & US demands.  The price of rosin was quite low at ~ $1700-1800/mt & not many farmers were willing to harvest at that that price, but there were enough to satisfy the expected low demand.

But Asia & India came with more demand than expected, the US kept getting stronger & importantly, Europe began to turn up.  So the scramble began to increase production.

At the current price of ~$2300 there is no labor shortage, so the question is does the current price balance production with end use demand?  There is still enough time left in this year’s crop to greatly increase production to meet current demand & to get through the off-season.

Where do we go from here – stability about we are now, or a continuation of the price spike?  I have no idea, although I lean towards stability.

Don’t you just hate bad endings to a good story??  A conclusive opinion would have been such a better read.

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