(Bloomberg) — The slump in global natural rubber prices is probably over because producers are finding it harder to cover their costs and will cut output, according to Michelin & Cie., Europe’s largest tiremaker.
Rates have reached a floor of about $1.50 a kilogram, Luc Minguet, senior vice president and chief procurement officer, said in an interview in Singapore on March 23. Futures averaged $1.584 in the past year and were at $1.431 on Monday.
“At this level of prices, we see supply starting to adjust, simply because people at plantations cannot make a living,” Minguet said. “They reduce their production.”
Futures have tumbled 75 percent from a record in 2011 as maturing trees boost latex output and the economy of China, the world’s biggest consumer, expands at the slowest pace since 1990. The plunge has cut costs for tiremakers such as Michelin and Goodyear Tire & Rubber Co., and spurred efforts by Thailand, Indonesia and Malaysia to limit supplies.
Prices on the Singapore Exchange for technically specified rubber used in the tire industry fell 5.5 percent this year, extending four annual losses, after reaching a peak of $5.75 in February 2011. Output from new plantations rose in 2013 and 2014 and demand was a little lower than expected, said Minguet, who’s scheduled to speak at a Singapore conference on Wednesday.
An expansion of plantations across Southeast Asia from 2004 to 2011 has caused a supply surplus from 2011 through 2016, according to the Singapore-based International Rubber Study Group. The glut is poised to drop to 51,000 metric tons next year from 77,000 tons in 2015, it estimates.
Demand Growing
Global demand for tires will probably expand about 2 percent to 5 percent in the next five years because mobility is important for people and the number of cars will increase, said Minguet, who’s been with Michelin for 12 years. Tires account for 70 percent of natural rubber demand, the IRSG estimates.
Fluctuating oil prices and the “gloomy situation” in China are among factors that make the outlook for 2015 unclear, Minguet said. China’s economy has cooled as officials rein in local-government debt, crack down on graft and strengthen environmental laws. The targeted expansion of about 7 percent this year would be the smallest increase since 1990.
The market should be “very, very close” to balance this year or next, said Jean-Noel Quillet, managing director of Michelin’s unit in Singapore which procures natural rubber for the group. “There’s an adjustment going on.”
Tire Sales
Global sales of light vehicles and trucks weighing less than six tons will probably rise 3.5 percent to a record 90 million units in 2015 and increase a further 4.9 percent next year, May Arthapan, a Bangkok-based director at LMC Automotive Thailand, said in an e-mail March 18. Sales in Asia will expand 5.3 percent to an all-time high of 40 million units, data shows.
“Tire manufacturers are concerned that prices are so low because there is a risk that plantations will be dug out,” said David Shaw, head of research at U.K.-based Tire Industry Research. “We’ll see an increase in production of tires as time goes on and if natural rubber isn’t available, that increases business risks,” he said in an interview March 23.
While tire sales for trucks and passenger cars grow slightly in North America and are flat in Europe, car tire sales continue to increase in new markets such as China, India, Southeast Asia, Brazil and Mexico, Minguet said.
“We are willing to grow in China, and we are growing in China,” Minguet said. “We have significant investment plans in China, both for passenger car and truck tires,” he said, without elaborating. Passenger car tires contribute about half of Michelin’s sales and truck tires about a third, he said.
– Blomberg
