Natural Rubber Shortage Will Bring More Tyre Price Hikes

Calling it the worst natural rubber shortage in years, industry analysts expect record shortages to continue into next year, according to reports. Heavy demand by tyre-makers around the globe coupled with a combination of drought and heavy rains in plantation areas has sharply reduced output and inventories of natural rubber, according to Bloomberg, with analysts saying natural rubber production will continue to lag for the next two years. What that means is further increases in natural rubber costs to tyre-makers, and higher finished good prices for tyre dealers and consumers.

Inventories of natural rubber are expected to fall 12 per cent to less than 70 days of demand in 2011, the lowest inventory level in more than a decade, according to Goldman Sachs. Meanwhile, consumption will outstrip those inventories by nearly 130,000 metric tons, the most since 2007. Natural rubber sales are increasing at the fastest rate since 2005, according to the International Monetary Fund, thanks to growing demand from the global economic recovery.

At the same time, lengthy drought conditions coupled with heavy rains and flooding at plantations in Thailand and Indonesia sharply reduced tapping and processing, further pressuring natural rubber prices. Thailand’s production is expected to be off as much as 5 per cent from 2009, while Indonesia’s output will come in slightly lower than the year prior.

Weather and demand pressures are expected to reduce inventories by 6 per cent heading into 2011. Driven by growing OE – up 8 per cent globally – and replacement market tyre sales, global natural rubber consumption, though, is expected to rise 9.4 per cent this year, and by a like amount in 2011.

Some analysts think natural rubber futures will hit $4 a kilogram by March on the Singapore Commodity Exchange, a 14 per cent increase from current prices. Bloomberg said that prices hit a record $4.11 in April 2010 and booked $3.50 per kilogram on 20 September, still up 22 per cent year-on-year. (Tire Review)