Some things in life just don’t make sense. Take the current state of natural rubber pricing supply and demand. According to the Association of Natural Rubber Producing Countries, there’s a current worldwide NR shortfall of about 700,000 metric tons.
The group does expect the supply gap to close considerably to 466,000 tons by September and just a bit more than a 100,000 tons by December. So right now, prices should be climbing, correct? That’s if NR pricing followed the normal course where tight supplies should equate to rising prices.
But that’s not even close to being the case. The going rate for Standard Malaysian Rubber 20—the common Malaysian tire-grade rubber—was 242.95 cents per kilogram on Jan. 31. As of July 27, however, the commodity was going for a mere 152.6 cents, a whopping decrease of 37 percent.
Of course, natural rubber isn’t your normal commodity, as a wide range of factors can impact pricing. Some of the variables cited by the ANRPC during the first half included: bad weather in Thailand; speculation in Asian commodity markets; and the strength of the U.S. dollar against Asian currencies.
Other factors, though, matter even more. The members of the International Tripartite Council—Thailand, Indonesia and Malaysia—are trying to keep prices higher by restricting exports.
It’s also estimated that more than 5 million small farmers in Southeast Asia are trying to make their living from tapping Hevea trees, and the U.S. gets at least 90 percent of its NR from the region. But when prices remain low, the small NR farmers are reluctant to tap or replant trees that bring in such a low return. That will lead to long-term issues, where tapped areas will be abandoned, more Hevea acreage will go unused, and small farmers will turn to other more profitable crops when possible.
So far it doesn’t appear that the world’s tire manufacturers—the largest consumer of NR—are too concerned about the supply shortage. Continental said it hasn’t stopped it from getting all the NR it has needed so far this year. The firm also expects that prices for NR will remain volatile given the variety of market conditions impacting supply and demand.
Long term, the situation with NR could be a boost for the variety of alternative sources for natural rubber that are be developed, including the dandelion research Continental is involved in along with the various guayule projects that are moving forward.
These efforts, though, won’t yield the necessary results for some time. Ambitious forecasts say guayule won’t be much of a factor for at least 10 years, while rubber from dandelions is even further down the road.
So for now, NR consumers have little choice but to continue to ride with the ups and downs of the volatile NR market.