Rubber Prices Set To Rise Sharply

A statement from Jom Jacob, senior economist of the Association of Natural Rubber Producing Countries, warns that increased demand for natural rubber – demand which producers are struggling to fulfill, will inevitably lead to spiralling rubber prices. Factors such as erratic weather, lack of cultivatable land and labour supply constraints could all adversely affect output in the main producing countries of Thailand, Indonesia and Malaysia.

International prices have risen four-fold since 2001, when there was over-supply and the price was at a 30-year low. Some analysts say they expect rubber to rise around 18 per cent to $3 a kg next year. Thai RSS3 grade, often used as the benchmark for physical prices, stood at USD2.55 a kg on Friday.

Strong demand, mainly from China, is another major factor in increasing prices. Tyres account for 60 per cent of the country’s rubber consumption, according to China Rubber Industry Association.

As the world’s largest consumer, China last year imported 1.6 million tonnes of natural rubber, which is used in everything from tyres to sports shoes and the country’s rubber consumption is to rise 12 per cent in 2007 from 2.1 million tonnes last year, says the CRIA.

China is emerging as a major exporter of cars and production of tyres has grown above 20 percent a year over the past few years and last year, China leapfrogged Japan to become the world’s second-largest 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 per cent each year for natural rubber,” said Jom Jacob.

Business in booming too in India, whose economy has grown at an average of 8.6 per cent in the past four years. India grows rubber but also imports from Southeast Asia to fill a supply gap.

India’s tyre industry has an annual turnover of USD4.5 billion and production of passenger cars is expected to grow 18 per cent each year from 2006 to 2010.