Rubber Supply Tight for Five More Years

The International Rubber Study Group has warned that supplies of natural rubber will remain constrained until at least 2012 as current levels of production are not keeping pace with rising demand from China and India. The group’s secretary-general, Hidde Smit, even warned that output in Malaysia, the world’s third largest rubber producer, is expected to fall below 1 million metric tonnes by 2020 from its current annual level of 1.2 million tonnes due to farmers cutting down rubber trees and replacing them with oil palms.

The price of natural rubber has more than doubled since 2002, prompting farmers in Thailand and Vietnam, the world’s largest and fifth-largest producers, to plant more trees,. These will take about five years to reach commercial production. “It’s been a very tight market that we’ve been experiencing since 2002,” Smit said. He added that this situation would continue until about 2012, when current new planting in other countries enter production.

Compounding the problem are the disruptions to supply that have been experienced in Thailand this year as a result of racial tensions in the south of the country. In one incident, some 3,500 tonnes of rubber valued at as much as 400 million baht (£6.3 million) was destroyed in a warehouse fire in February. It is believed that the fire was started by insurgents who are waging a campaign of violence in the three provinces that border Malaysia.

China is the world’s number one rubber consumer, and statistics from the China Rubber Industry Association show that the country will increase imports of the natural commodity by 8.7 per cent in 2007 to meet rising demand from tyre and footwear manufacturers. The association adds that demand will rise by 35 per cent, to almost 8 million tonnes, within three years.

Additional synthetic rubber made from crude oil will be produced to make up for the current shortfall. And Smith admits there is no way of predicting where rubber prices are heading, but is certain that concerns about the long-term availability of natural rubber and current high prices will most likely lead to the further use of synthetic substitutes.