Are natural rubber shortages on the way?

London – Low natural rubber prices, caused by factors including oil prices, lower demand than forecast and weak global equity market, may lead to a slowdown in new plantations and replanting and tighten supplies from 2020 onwards.

So said Sheela Thomas, secretary general of the Association of Natural Rubber Producing Countries (ANRPC) in a speech at the 2016 China Rubber Conference in Qingdao, where she also warned that "the reported large stock overhang is only on paper.”

The China factor is not to be overlooked, either, added Thomas. The country accounts for 40 percent of global natural rubber consumption, and imports 80 percent of what it consumes. Its various economic situations and rubber policies, such as the depreciation of yuan and the new tariff policy on compound rubber that curbs imports, hold strong influence over the global industry.

Last year global natural rubber production dropped slightly to 11.8 million tonnes, lower than global consumption pegged at 11.9 million tonnes. “Farmers find it very hard to justify production,” said Thomas. “They are looking to the government for solutions.”

Another presenter reviewed moves by Indonesia, Malaysia and Thailand to jointly withdraw 615,000 tonnes of natural rubber exports from the market for six months, starting 1 March.

“China takes up half of Thailand’s natural rubber export, and I don’t expect the percentage to change any time soon,” said the Thai Rubber Association’s deputy secretary general Paitoon Wongsasutthikul at the conference.

Additionally, Thailand initiated above-market-price procurement of 100,000 tonnes of rubber sheets; India has announced a scheme that subsidises smallholders with the difference between the current price and the government’s fixed price.

“Such measures have not lead to any long-standing impact on price,” Thomas pointed out.

ANRPC countries are making efforts to form a Production Management Scheme, aiming to match the growth of rubber supply to emerging trends in world demand and find a price sustainable to producers and fair to consumers.

Thomas also urged producers to plant higher-yielding clones, to enhance worker productivity, to streamline their local marketing chains including eliminating the middleman, and to increase quality and specification.

Manufacturers of high-performance tires are willing to pay premium for rubber that meets their in-house approval specifications over general commercial specifications such as the TSR grade, she said.

One year ago

The forecasts of shortages in natural rubber supply by 2020 were in marked contrast to some views expressed at the Chinese Rubber Conference in 2015.

At last year's meeting, Stephen Evans, secretary general of International Rubber Study Group (IRSG) forecast that the year 2020 would see a 1 million tonne natural rubber surplus and a 3 million tonne synthetic rubber surplus.

The IRSG analyst, did, however, note supply-side challenges, including farmers’ financial reward and lack of inward investment for natural rubber.

Evans also reckoned that with limited local natural supply in major consumer countries – China and India – and new synthetic rubber capacity expansion in both countries, synthetic rubber may become the strategic product of choice.

The mixed views between this year and last are reflected by current trends on Asian rubber exchanges, with signs that the worst of the slump could be over.

Mixed views

On the Shanghai Futures Exchange (SHFE), prices for the most heavily traded rubber future RU1609 reached Yuan 11,370/tonne at the end of March, almost 13-percent higher than in the first week of trading this January.

In Japan, rubber prices closed at Yen167.0/kg on the TOCOM exchange, about 14 percent above the levels of early January.

Even bigger increases were recorded between early January and the end of March on rubber exchanges in Thailand and Malaysia.

Nevertheless, rubber markets still have huge ground to make up before any claim of a full-scale recovery can be made.

Even in the depths of the slump last July, September rubber futures on the SHFE were trading at Yuan12,165/tonne, while TOCOM listed its back-month price for natural rubber at Yen211.0/kg. Prices for RSS3 in Bangkok were at $165.8/100kg, while Kuala Lumpur prices for SMR20 at $145.1/100k – again well above current levels.