Rubber seen riding high on demand, scarcity

Rubber seen riding high on demand, scarcity

Singapore: With buyers the world over scouring for natural rubber and producing countries struggling to increase supplies, the industry will soon feel the bite of spiralling prices.

Though the market has been in balance in 2007, demand could exceed supply as early as next year, as several factors curb output growth in the main producing countries of Thailand, Indonesia and Malaysia. These include delays in planting caused by erratic weather, limits in cultivable land, labour supply constraints, higher wage costs and religious insurgency.

“There is no single piece of evidence to foresee a decline in the price. All factors are favourable for an increase in price," said Jom Jacob, senior economist of the Association of Natural Rubber Producing Countries (ANRPC). “There are well-defined limits for natural rubber supply to increase, at least, until 2012. So, the tight supply situation is likely to continue," he said.

International prices have risen fourfold since hitting 30-year lows in 2001, when there was a supply glut. Some analysts say they expect rubber to rise around 18% to $3 (Rs117.90) a kg next year.

Thai RSS3 grade, which is often used as the benchmark for physical prices, stood at $2.55 a kg on Friday.

“It’s possible the price will reach $3, although I would prefer to refrain from mentioning any specific number. Strong demand, mainly from China, is one of the factors that will push up the price," said a Tokyo-based analyst.

The recovery in rubber prices and continued robust demand have taken place on the coat-tails of China’s booming economy. Tyres account for 60% of the country’s rubber consumption, according to China Rubber Industry Association (Cria).

As the world’s largest consumer, China last year imported 1.6 million tonnes (mt) of natural rubber, which is used in everything from tyres to sports shoes.

China’s rubber consumption is to rise 12% in 2007 from 2.1mt last year, says Cria. China is emerging as a major exporter of cars and production of tyres has grown above 20% a year over the past few years. Last year, China outstripped Japan to become the world’s No. 2 auto market, with sales of 7.2 million vehicles and output of 7.3 million.

“There’s a close relationship between economic growth and domestic consumption. From 2007 to 2010, I anticipate demand growth in China at between 7% and 10% each year for natural rubber," said Jacob of the ANPRC.

A London-based analyst said global consumption was expected “to rise to 9.7mt in 2007, an increase of around 4%. Next year’s may reach around 10.1mt".