Losing grip, Japan tyre makers target new rubber supplies

* Tumbling rubber prices turn Asian farmers to other crops

* Japan’s tyre makers look to new suppliers or stable supply

* Push could benefit Cambodia, Laos, and Myanmar

By Yuka Obayashi and Rajendra Jadhav

TOKYO/MUMBAI, Feb 19 Fed up with rubber prices languishing at seven-year lows, Sunny Joseph, a farmer in India’s southern state of Kerala, has uprooted his two-acre (0.8 hectare) rubber plantation to make way for a more lucrative crop.

A similar trend among growers in Southeast Asia is alarming Japanese tyre makers and spurring them to seek new sources of supply away from traditional producers, amid fears that today’s glut could turn to a shortage.

Tyre makers in Japan and the United States have even been looking at extracting rubber from alternatives sources such as guayule, a desert shrub.

“For three years I had been waiting for rubber prices to improve. Prices were so low that I cannot even pay workers wages, so I decided to shift to nutmeg,” said Joseph. “It can easily give me a better return.”

Producers worry low prices will mean even farmers who stick with rubber could lack the funds to renew ageing plantations.

Japan’s big tyre makers account for nearly a quarter of global tyre sales and are major buyers of natural rubber, which is combined with synthetic rubber to give tyres better grip.

Top growers Thailand, Indonesia and Malaysia announced plans this month to curb exports by nearly 6 percent of global output, with Indonesia saying its output was set to fall as farmers dig up trees.

“Japanese tyre makers have become increasingly worried about the future supply of natural rubber since (last) summer, as falling prices could push farmers out of business,” said Shinichi Kato, president of rubber material dealer Shinichi Kato Office.

“Tyre makers are trying to buy more rubber from countries with lower labour costs such as Vietnam, Laos and Cambodia in case some producers at other countries with higher costs such as Thailand stop making rubber,” he said.

Yokohama Rubber Co Ltd, Japan’s third-biggest tyre maker, started buying rubber from Myanmar in 2014, widening its supply sources to seven countries.

“We’ve heard some rubber farmers in northern Sumatra island in Indonesia had shifted to palm oil trees due to sagging rubber prices. That made us worried,” a company spokesman said. “We want to widen our procurement network beyond mainstay sources.”

Japanese trading firm Mitsui & Co said last year it planned to start rubber farming and processing in Cambodia, collaborating with a local firm, and sees low-cost producers like Cambodia, Laos, and Myanmar emerging as key output centres.

Bridgestone Corp, the world’s top tyre maker by sales, aims to boost productivity at its company-owned farms in Indonesia and Liberia in west Africa through breed improvement and tree selection.

Bridgestone is also trying to develop tyre grade rubber from guayule, which is native to Mexico and the southeastern United States.

U.S.-listed Cooper Tire and Rubber Co is also investigating guayule, which it has said could ensure a stable natural rubber supply, reduce price volatility and lessen dependence on foreign suppliers.

SUPPLIES TO TIGHTEN?

Industry officials warn a slowdown in new plantations and tree replanting could tighten supplies from 2020 onwards, as rubber trees only become mature for tapping six to seven year after cultivation.

“This will reduce supply, though demand has been rising from tyre makers,” said Indian rubber dealer N. Radhakrishnan, a former president of the Cochin Rubber Merchants Association.

Tyres consume about 60 percent of the global output of natural rubber. Rubber accounts for about 40 percent of tyre makers’ costs and tumbling prices have boosted profits, although the industry is under pressure due to cheap product from China.

Rubber futures in Singapore and Tokyo have tumbled more than two-thirds from record highs in 2011 to seven-year lows, due to slower economic growth in top buyer China.

Tokyo prices, at around 150 yen ($1.28) a kilogram, are well below their 10-year monthly average of about 260 yen.

The price plunge has already led to government support in Thailand, the world’s top rubber producer, where farmers are demanding a guaranteed selling price and threatening protests.

Malaysian rubber output fell 50 percent in the past two years and production has been stagnant in Thailand and Indonesia, according to the Association of Natural Rubber Producing Countries (ANRPC).

Farmers in these countries are turning towards oil palm cultivation, while growers in India, where production has fallen 28 percent over two years, are giving space to crops including banana and cocoa. Such crops can also be harvested more quickly after planting.

“Smallholders are badly affected due to the price fall,” said ANRPC secretary-general Sheela Thomas.

“When it comes to replanting, these farmers have to think about survival. It is natural for them to shift towards crops they think will give better returns.”

($1 = 117.3100 yen)

(Reporting by Yuka Obayashi and Rajendra Jadhav; Editing by Richard Pullin)