A New Opportunity Rises in Thailand – Part 1

In every crisis, the global markets could not escape from the talons of Dollar “manipulation”. When Dollar sank in the past during each crisis, commodities have made skyrocketing records while Asia currencies soared too. On U.S. market, we would see a slowdown in economy and limited spending power of Americans. Simultaneously, the common folks in Asian markets would struggle to meet the high prices of commodity bubbles with inflated currencies. On the contrary, the cycle of Dollar recovery would always be accompanied by a flight of investment fund to U.S. markets for higher yields when asset prices in Asia plunge!

During the post crisis recovery in 2009, most global funds searched for high rising trends in precious metals while Dollar was deflated tremendously. However, not many traders have realized the growth in Rubber prices actually surpassed all other major commodities in the world. Since the global investors’ fund placed a heavy stake in Gold, Silver and Crude oil, the largest surging range was actually hidden and laid in Rubber prices. Looking back at that period, the Dollar-denominated Rubber rose from USD1.00 /KG to USD5.70 /KG ended in March 2011, yielding 470 percent gains.

Rubber has been a global commodity since the invention of vehicle tires in late 19th century. Ironically, Rubber trees are unique plants that can be grown only in tropical countries. The unique conditions of weather, soil and humidity make Rubber commodity exclusively available only in some parts of our South East Asia region with long-proven agricultural technology.

Since the breakout of covid-19 crisis, Rubber prices have been rising slowly due to the growing demand of latex gloves. Currently, nitrile gloves are made of synthetic rubber and have been rising in overwhelming purchases from European buyers due to the resurgence of pandemic crisis. It is incredible to know that paid orders will take more than a year to be delivered. However, the demand for rubber gloves also spirals up as an alternative and cheaper means. Hence, the general usage of rubber gloves has shifted from surgical theatres to the common streets.

In Asia, the largest Rubber Futures market without capital control is the Ribbed Smoked Sheet No. 3 (RSS3) Rubber in Japan. This is a Yen-denominated market that has been commonly used for bona-fide hedging and diversion of price risk among regional tire-makers as well as greatly epitomized by short-term speculators. Till date, the average daily volume in TOCOM RSS3 market is about 10,000 contracts and serves as a strong benchmark for the Northern Asia markets.

In order to capture the large participation and interest from Asia in Rubber market, TFEX has taken another bold step to design a brand new Quanto-product to be launched soon. This is a revolutionary Rubber Futures in Thailand that is a mimic to the live prices of TOCOM Rubber RSS3 Futures. Besides the trading hours that will largely coincide but bridge the day session and T+1 session in TOCOM market, TFEX plans to unravel more opportunity in price arbitrage when the duo markets move in peak hours. While traders may worry about the FX risk and fluctuation of Yen prices, the TFEX JRF instrument will be settled in Thai Baht to eradicate the fear of traders in their currency exposure.

In February 2011, the Yen-denominated Rubber spiked to historical high at JPY535 /KG and many traders only started to peek at the TOCOM market then. Currently, the RSS3 Rubber market is trading and about to make its halfway there at JPY230 /KG when compared to the all-time-high record. Moving into 2021, the precedence of global recession with sinking Dollar will induce the awareness of many traders and hedgers on another possible escalation in Rubber and general commodity prices. In fact, TFEX is just coming at the right time to launch the TFEX JRF market that is a Quanto-product to TOCOM RSS3 instrument!

Among all Rubber sheet producing countries, Thailand has been the largest producer and exporter for past decade in this Rubber category. Beside the domestic demand, the importing countries are mainly China, U.S., Japan, India and Taiwan. When TFEX launches the TFEX JFR Futures and succeed in capturing the liquidity tagged to the volatility of TOCOM RSS3 market, we will not be surprised to see more price-risk hedgers from these countries will participate in TFEX market due to cheaper clearing fee and trade commission.

With such a rising powerful opportunity, will the market speculators take a second look at TFEX JRF for a daily living? The menu is at the choice of the traders if they plan to speculate, arbitrage or hedge for price-risk fluctuation. TFEX has provided a superb platform for your appetite. It’s your decision to make now.

Authored by DAR Wong

DAR Wong is a market veteran and professional from Singapore. He has exposure from international securities and derivatives for more than three decades. The expression is solely at his own.  He can be reached at dar@alaa.sg