Rubber/ GMG/ Halcyon

Rubber/ GMG/ Halcyon: According to the International Rubber Consortium, rubber producing countries may introduce measures to counter a further fall in prices after the 6-mth joint-measure ended on 31 May. The joint-measure was an agreement between Thailand, Indonesia and Malaysia to cut shipments by 300,000 tonnes over the previous 6-mth period. Thailand has extended its curbs for another two months, but acknowledged that the measure had little impact on pricing. When the measure was implemented in Aug 2012, rubber futures rallied 60% to a 2013 peak of 337.8 yen/kg on 6 Feb. Since then, the negative news flows of high inventories at both China and Japan, together with the continued downward adjustments on GDP numbers to major economies like China, US and Germany, saw prices of rubber tumbling back down to 239.1 yen/kg this morning. Even with the current weak prices, the high levels of inventories are enough to deter imports. Some of the Chinese tyre making companies are starting to purchase cheaper materials sold in their own country to stock up their rubber inventory. As an introduction, GMG Global has rubber plantations in Thailand, Indonesia, Cameroon and Cote d'Ivoire with total annual capacity of c.370,000 tons. The group handles the entire value chain from planting to processing, down to exporting of natural rubber. GMG's parent is China Sinochem, a diversified conglomerate which is one of the largest sellers of natural rubber in China. Halcyon Agri is a midstream rubber player, where they will acquire raw materials (rubber slabs) from suppliers, processes these materials into different compounds (TSB- which are mainly used for vehicle tyres), and sell them to their customers. Under this business model, Halcyon would not be as exposed to the raw material pricing, as their contracts typically have a variable component which is referenced to raw material prices. In terms of share prices, Halcyon listed on 1 Feb 2013 at an IPO price of $0.36, and has gained 137.5% till-date. This was partially contributed by a 150% increase in capacity after the group agreed to acquire assets from Malaysian rubber producer Chip Lam Seng. GMG Global saw its share price slide gradually since the end of 2010 from the $0.22 range to the current price of $0.111. The decline was largely in line with the fall of rubber prices. On a year-to-date basis, GMG Global has fallen 16.5%.