Rubber prices expected to remain high

By Erin Robinson

Rubber prices recently skyrocketed to 20-year highs, leaving tyre companies scrambling, and analysts predict they will continue to rise through 2006.

A booming Chinese automotive and industrial market has caused a surge in demand, pushing up the price of natural and synthetic rubber.

According to the Economist Intelligence Unit (EIU), the average price for RSS1, the most common type of natural rubber used in tyres, hit $2500 per metric tonne on July 20, compared to this year's second quarter average of $2380 and last year's fourth quarter average of $1864.

Kona Haque, chief commodities analyst at EIU, predicted that natural-rubber prices would continue their climb through 2006 and 2007.

She forecast the average price for 2006 to be $2600, reach $2700 by the end of 2007 and stay high through 2008 before demand began slowing and production increased.

Haque said prices for synthetic rubber were rising as well because of high petroleum prices, the main raw material used in synthetic rubber, and industrial consumers must learn to live with high rubber prices.

According to a report by ICIS pricing, July contract prices on US exports for the most common type of synthetic rubber, styrene butadiene rubber (SBR), were also rising.

The report said prices for the common type of rubber used in tyres was between $0.60 and $0.64 per pound in June, which was between $0.01 and $0.02 higher than in May.

It said some predictions for July's product saw possible price increases of between $0.015 and $0.02 but that could depend on tyre sales.

While some companies have tried substituting synthetic rubber in their tyres, others have been pushed to cut production or close plants.

More than 60 percent of the rubber industry was devoted to tyres, and an additional 10 to 15 percent was related to other automotive parts, said Hidde Smit, secretary-general of the International Rubber Study Group.

Whitney Luckett, vice president of sales and marketing with RCMA Americas Inc., said Chinese demand was much higher than expected and higher prices were a consequence of that demand, along with a limited supply of the tree-grown commodity.

Luckett expected prices to consolidate and rise slightly by year end.

She said year-end prices for natural rubber would not be near what they were on 1 Jan but rubber could be highly influenced by anything from rains in Asia to air quality.

From Automotive News (A Crain publication)