Although prices at both the global and domestic markets have now stabilized at a lower level, in the region of US$ 4.00 to 4.60 (Please see figures 1&2), yet there are many issues that are of concern to the rubber world.
Some of the issues that are before the global rubber industry are: Will the 15% growth rate in global rubber consumption since last year continue this year and beyond? Will the Chinese demand which has been showing signs of slowdown pick up later this year? Will the SR share in global rubber consumption go up significantly in the near future? Will the NR prices stabilize at the present level and if so, how long? And Will there be another global recession and if so will it affect the NR industry?
Market experts say that, demand-supply gap will only widen in the near future. They also point out that the higher prices of NR may not serve as a catalyst for a production boom in major NR producing countries if the ongoing pace of replanting and new planting in these countries is likely to be maintained in the future.
The auto boom in the Asian region especially in China and India is still alive despite a slight fall in China recently. While major tyre makers such as Bridgestone were active buyers, China’s purchases of NR in the physical market have subsided since at least March 2011 because of a slowdown in the country’s auto market. But the latest reports indicate that demand has already started signs of bouncing back in China.
Meanwhile, fears of yet another recession are hovering over the already battered major economies of the US and Europe. However, it will not be intensive enough to upset the growing demand for NR especially as the replacement market would certainly remain strong in any case. The current slight fall in crude prices will also not make any significant change in the SR-NR consumption ratio in the long term, say experts.
Total production of NR from all member- nations of the ANRPC was expected to grow only at 5.8% annual rate during the second quarter (April-June) of this year. The growth for the second quarter, as forecasted a few months ago, was 10.5% .Thailand, Indonesia, Malaysia, India, Vietnam, China, Sri Lanka, Philippines and Cambodia together account for 92% of the commodity’s global supply.
Meanwhile, the output growth during the full year 2011 now stands revised down further to 4.9% from 5.8% forecasted a few months ago and 6.4% growth attained during the previous year . The new revision results from a down-scaling of Indonesia’s anticipated production for the year to 2.891 million tonnes from 2.972 million tonnes expected a month before. Philippines also has downscaled the output anticipated for this year to 107,000 tonnes from its earlier forecast of 114,000 tonnes.
The ANRPC expects an additional supply of 1.13 million tonnes coming into the international market in 2012. This assumption is based on the fact that about 2.55m hectares would be opened for tapping from 2012-2017. This is equivalent to 36% of the yielding area of the ANRPC-member countries.
An analysis by the IRSG indicates that global rubber demand is likely to reach 25.5 million tonnes in 2011. It forecasts NR output of 10.2 million tonnes in 2010, rising to 15.4 million tonnes in 2020.
India is another major consumer of rubber and, with a good economic growth the demand will be only going up. Rubber consumption would climb to 1.89 million tonnes in 2020, compared with 930,000 tonnes in 2010, according to the latest reports.
The quantum of India’s annual rubber consumption was almost equally split between the tyre and non-tyre industries till a few years ago. But the tyre sector’s demand for rubber is likely to be two-thirds in the near future on account of the growth in automobile sector. The high rubber demand across all segments has also led to increasing deficit The deficit is expected to expand further from 189,000 tonnes now to 840,000 tonnes in 2020.
Bridging the gap
With a view to bridging the widening gap between demand and supply, some countries have started experimenting genetically modified (GM) NR cultivation. India has planed investigations on GM rubber. The industry is of the opinion that such initiatives are absolutely essential to meet the country’s future NR demand.
China has also gone all-out to support the domestic industry by buying rubber plantations in Africa, Thailand, Vietnam and Indonesia to ensure increased supplies of rubber. India is also vigorously extending plantations into some of its non-traditional areas, especially in the Northeastern States. About 100,000 hectares have been identified for this purpose, which would be in addition to the existing 50,000 hectares and Sri Lanka another 40,000 ha in the Low country Intermediate Zone. However, such initiatives may not be sufficient to meet the projected NR demand.
Meanwhile, the NR industry doesn’t anticipate a significant drop in NR use following new tyre-making technologies, including new compounding. So far, experts do not yet foresee a significant drop in NR use. There are no developments on the SR side which would have considerable impact on the NR market.
A frequently mentioned subject, Guayule, is being mentioned again as NR substitute, but it is produced only on a small-scale and the industry experts do not yet foresee large-scale production, although very high NR prices will definitely stimulate such moves .
It is reported that Rubber production in Malaysia, the world’s third-largest grower and exporter, may expand 6.5% as higher prices encourage farmers to boost tapping. Output may increase to one million tonnes this year, from 939,000 million in 2010.If the price continues to remain this strong, then smallholders may continue tapping. They are expected to tap when they need money or when it is very lucrative for them to tap output from Malaysia, which represents about 10% of global supply, is to go up significantly in the coming years, according to Malaysian Rubber Board. Old trees will be replaced with higher-yielding clones and better technology is being used to increase output under a Government development plan.
The country plans to increase plantation areas by 30,000 hectares a year over the next five years. The Southeast Asian nation currently has about 1 million hectares of rubber, of which 650,000 hectares are being tapped. The rest are unattended or too old. The country’s exports are forecast to rise to 930,000 tonnes this year, the highest since 2007, according to the Board. The country exported 901,000 tonnes last year, with almost 40% going to China. Thailand Rains may have reduced Thai rubber output by 30,000 tonnes in the second quarter. Reduced production from Thailand, which accounts for 30% of global supply, would potentially increase costs for tyre makers like Bridgestone Corp, Michelin and Goodyear Tire & Rubber Co
The current rubber trends are boosting the prices of styrene butadiene rubber (SBR),which is widely used in tyre. Its demand is outstripping supplies, fuelled by downstream tyre makers stepping up SBR use because of the more expensive NR. However, a quick addition of SBR in order to reduce NR content is not feasible as switching to a new combination in the compounding process takes time.
However, demand for SBR in India is steadily going up. The world’s top synthetic rubber producer Lanxess has said it sees a big jump in SR consumption driven by high demand, particularly by manufacturers of radial tyres.
According to reports, crude oil market sharply fell from the beginning of May. Europe brent oil price fell from $127 per barrel on May 2 to $109 per barrel on May 17. WTI oil price fell during the same period from $113 per barrel to $96 per barrel. It has also been reported that NR market sharply fell during the downward phase of crude oil prices although NR has not fallen to the extent of the fall in oil prices. This could have been due to positive influences on NR market exerted by the slowdown in NR supply and the favourable trend by Japanese yen.
Tight supplies and consequent higher prices of NR have woken up many a tyre maker to venture into planting rubber in a major way. Machelin owns rubber plantations in Brazil, Bridgestone and Firestone in Liberia and Ghana and Goodyear in Indonesia. They are pioneers in the field.
Of late, some of the Indian tyre majors are also planning to follow suit. They include Apollo and JK Tyre. Apollo is reportedly exploring possibility of a plantation venture in Laos and Combodia. India’s Automotive Tyre Manufacturers Association (ATMA) has had an exploratory visit to Africa for the purpose. RPG group’s Harrisons Malayalam is also scouting for some areas for rubber cultivation abroad.
Experts commenting on Indian tyre companies’ plans to venture into rubber cultivation say that it is a different kind of game and it may not be viable for the plantation business to subsidize a tyre company’s tyre business. Though some companies produces rubber, they are not selling the same to their associate companies engaged in the tyre business.