Nanhua Futures believes that the EUDR primarily affects rubber and its downstream products that enter the EU through the supply chain, accounting for about 8-9% of global rubber demand. This means that this portion of rubber is relatively small in comparison to the total upstream production.

From an industry chain perspective, the countries most impacted by the EUDR include Côte d'Ivoire, Thailand, Indonesia, Malaysia, and Vietnam for rubber exports to the EU, and China, Turkey, Thailand, and Vietnam for tire exports to the EU, along with the main rubber-producing countries importing to these nations.

Impact of EUDR on Upstream

According to research feedback, Nanhua Futures indicates that Côte d'Ivoire and Thailand are actively preparing for EUDR certification. Côte d'Ivoire is expected to export most of its rubber to Europe and the US this year, with a significant decline in exports to China compared to 2023. As a new rubber-producing country, Côte d'Ivoire has maintained a growth rate of over 15% year-on-year in recent years, with a dry rubber export volume exceeding 1.4 million tons in 2023 and an expected increase of around 200,000 tons this year. Thailand, the world's largest rubber producer, despite a downward trend in recent years, has not seen a significant decline. Influenced by the low prices in previous years, farmers' enthusiasm for tapping rubber is low, with a production of about 4.7 million tons in 2023, accounting for roughly one-third of global rubber production. Nanhua Futures reports that around 95% of Thailand's rubber plantations are undergoing EUDR certification. The plantations only need to submit materials, incurring no sunk costs. However, from the processing stage onwards, costs begin to rise, with EUDR raw materials sourced directly by factories costing 4 THB/kg more than non-EUDR materials, and 12 THB/kg more when sourced through secondary dealers, leading to a 15% cost increase. Currently, the certified EUDR rubber production from Thailand and Côte d'Ivoire alone exceeds the EU's EUDR demand.

Indonesia and Malaysia are strongly opposed to the EUDR, as its implementation will increase rubber export costs, especially for countries needing to establish and improve traceability systems, implying additional investment and operational costs. However, Indonesia's opposition is more focused on its main export commodity, palm oil, which may delay EUDR implementation in Indonesia and Malaysia further.

Impact of EUDR on Downstream

Nanhua Futures analysis suggests that trial exports of EUDR rubber could increase downstream costs by $200-300/ton, and long-term contracts by $400-500/ton, translating to a 10%-30% cost increase relative to current rubber prices. This poses significant pressure on the downstream sector. Recent market trends have started to reflect EUDR-related speculation and liquidity lock-in, pushing prices up by over 10%. Combined with the EUDR rubber premium, this adds pressure on downstream buyers, whose willingness to accept these costs is crucial for market balance.

Currently, inquiries for EUDR rubber are primarily from foreign investors, with Chinese factories yet to undergo EUDR certification.

Future Pricing Considerations of EUDR

From a cost perspective, Nanhua Futures notes that while rubber plantations incur no sunk costs, costs begin to accumulate at the upstream processing stage with premiums added for EUDR-certified materials over non-EUDR ones. The fixed costs in the middle stem from the additional investment and operational costs required to establish and maintain traceability systems (exact costs unknown). These costs, plus premiums, are then transferred downstream to tire factories and ultimately to consumers.

In conclusion, Nanhua Futures believes that EUDR rubber, which constitutes only 8%-9% of global rubber demand, has an expected certified production volume that significantly exceeds this demand. Pricing reflects a premium over non-EUDR rubber. The current pricing is influenced by the scarcity of trial-stage EUDR-certified raw materials, the low overseas production season, and the control of pricing by secondary dealers. As market speculation subsides and overseas raw material volumes increase, leading to a more mature EUDR implementation, the market is expected to return to more rational valuations, including the relative premium of EUDR rubber over non-EUDR rubber in both raw materials and finished products.