Rubber Supply Stretched Tight

The booming global automobile sector - especially in countries such as China and India - has accelerated demand for tyres. But the world's natural rubber supply is likely to remain tight for the next two years due to a lower yield from major producing countries such as Thailand.
The Association of Natural Rubber Producing Countries (ANRPC) estimated natural rubber supply increased by 6.3% to touch 9.4 million tonnes during 2010, but expects a drop in production from Thailand this year due to an extended winter and unpredictable rains. Production in Indonesia also dropped for this harvest due to unusual rains.
Still, the global rubber supply in 2011 is expected to equal last year's total due to the chance of increased output in many major growing countries, said Jom Jacob, senior economist at the ANRPC.
Thailand is planning to reduce its rubber plantations by 815,000 hectares in the South to grow oil palm trees. It will expand rubber plantations in the North and Northeast by 870,000 hectares. A shift in the supply curve is expected from 2012 due to the new planting areas reaching the yielding stage, said Mr Jacob.
He expects the impact of supply from such a large area to be partly offset by uprooting of old rubber trees in all major producing countries.
Labour availability and climate are the two main risk factors for rubber supply. Delay in replanting due to current high prices and crop expansion in non-traditional areas where yield will be lower are factors to watch out for in the near future, said ANRPC secretary-general Djoko S. Damardjati.
Inappropriate planning for synthetic rubber production is also making the situation tight, said Stephen Evans, the secretary-general of the International Rubber Study Group (IRSG). Globally, a shortfall is being reported in the production of butadiene, an important industrial chemical used as a monomer in the production of synthetic rubber.
India imports more than 80% of its synthetic rubber. The Rubber Board of India reported the share of natural rubber in automobile tyres is 73% and synthetic only 27%. Globally, synthetic rubber averages 56% composition in tyres against 44% natural rubber.
The IRSG said during 2010, natural rubber demand stood at 10.3 million tonnes while synthetic was 13.6 million tonnes. Rising crude oil prices have been a major factor in the production and consumption of synthetic rubber as it is mostly produced from the cracking of feedstock naphtha.
"Indian synthetic rubber production is non-existent, unlike China that has strategically built up huge capacities. In the past five years, India has only added 0.5 million tonnes of synthetic rubber production capacity," said Mr Evans.
India's monthly production of synthetic rubber totals around 8,000 to 9,000 tonnes against demand of 30,000 to 33,000 tonnes. "Based on the recent market experience of petrochemical cracker diets going light, butadiene supply will be constrained," he added.
The quantity of butadiene produced depends on the hydrocarbons used as feed. "The discovery of cheaper natural gas like shale gas in the United States has led to less production of butadiene as a byproduct. Most plants in the United States are flexible enough to switch quickly," said Mr Evans.
The supply of butadiene in the United States has been light the last two years. Europe, Canada and China are also trying the new cheaper and abundant shale gas. More countries adapting to the new feedstock will mean less butadiene.
India's natural rubber production ranking is being challenged by Vietnam. India's share as a percentage of total planted area of the ANRPC has remained almost the same from 2005 (7.5%) to 2009 (7.8%).
IRSG officials estimate rubber demand in 2010 to touch 23.9 million tonnes, growth of 12.9% over the previous year. In 2011, demand is estimated at 25.5 million tonnes with growth of 6.7%.
India's automotive market gained momentum the past two years as the country rode strong economic growth despite a global slump. Rising disposable incomes, easier access to consumer credit, plenty of product action and some aggressive discounting by manufacturers have jumpstarted car sales.
The Society of Indian Automobile Manufacturers said 12.29 million vehicles were sold from April 2009 to March 2010. This included passenger vehicles, commercial vehicles, three-wheelers and two-wheelers.
China's tyre industry is also finding it hard to cope with higher rubber prices.
The Global Times, a subsidiary of the People's Daily, quoted Deng Yali, vice-chairman of China Rubber Industry Association, as saying rubber prices rose more than 80% in 2010, cutting into manufacturer profits. The report also states China uses one-third of the 9 million tonnes of rubber used worldwide on a yearly basis.
Chinese consumer tyre exports to the United States totalled 31.1 million units in 2010, down from 43 million in 2009, according to reports.
(Bangkok Post, Thailand, January 24, 2011)