Rubber prices falling: producers to take action

China , Europe , Indonesia , Japan , Rubber , Thailand , USA Feb 17, 2014 No Comments

RubberNatural rubber prices have lost between 13% (in Shanghai) and 20% (Tokyo) since the beginning of the year, after falling 25% in 2013. Last week, the International Rubber Consortium (IRCo) urged its members not to sell their products to current “unreasonably low” price levels.

Declining price of natural rubber has led, according to IRCo, to prices lower than synthetic rubber, which is contrary to recent years trend. In 2014, supply should exceed demand for the fourth consecutive year according Commerzbank, with global production increasing by 4.5% and demand by about 3%.

On the supply side, Thailand, the world’s largest rubber producer, should see its production rise by 4.5% this year to 4 million tonnes. The third largest producer behind Thailand and Indonesia, Vietnam, also plays a key role since it increased its production by 39% between 2010 and 2013, to nearly 1 million tonnes.

The Chinese economy, the world’s leading buyer of rubber, is the other key to falling rubber prices. China represents 35% of global demand for rubber, mainly for tires in the automotive industry. The International Monetary Fund forecasts a slight decrease in the country’s growth, from 7.7% in 2013 to 7.5% this year. In addition, the Shanghai Futures Exchange warehouses inventory have reached their highest level since 2004 in January. Those disappointing economic data and/or high inventories could have a negative effect on the price of rubber.

Faced with this situation, the International Rubber Consortium met on February 8th to review the current low natural rubber (NR) prices situation and published this statement: “IRCo assessed the current stock level available for sales in the International Tripartite Rubber Council (ITRC) countries is low contrary to what is being reported in the media. The low stock level would be further aggravated in the coming months with wintering expected to be severe in the three producing countries. The recent sharp fall in NR prices has resulted in NR being traded at a discount to synthetic rubber (SR) which is against the norm for the last few years. In light of the above, IRCo is of the view that prevailing NR prices are unreasonably low and would immediately advise respective Trade Associations in the ITRC countries to jointly encourage their members not to offer NR at prevailing low price and IRCo will also propose to the ITRC countries to accelerate and enhance the implementation of the Supply Management Scheme.”

But it is not certain that the IRCo statement will have a lasting effect on prices, as the inventory in natural rubber importing countries is high. The automotive industry, which represents 40% of the demand for rubber, fell last year in the United States, Japan, India and, to a lesser extent than in 2012, in Europe. Even if the automotive industry gets going again this year in the United States, India, and in Europe, it is slowing down in China.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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