Around the world, and especially in China, the demand for rubber products is rising -- while natural supplies of the material are threatened. For manufacturers who use rubber, that means prices for materials are likely to rise in the near-term.
Thanks to a robust world car market, the demand for tires is rising -- but that's pushing up prices on rubber. How much? That's not certain yet, although the increased demand is significant. According to the Rubber Manufacturers Association, 2010 may see a 38 percent increase in orders for original equipment manufacturer passenger tires and a five percent increase in passenger replacement tires.
At the same time, the Shanghai Futures Exchange said China's natural rubber inventories continued to expand through the third quarter of 2010. China was expected to import 135,000 tons of natural rubber in August and 130,000 additional tons in September, contributing to the 5 percent increase in its gross imports this year, according to the Association of Natural Rubber Producing Countries. That stockpiling has also driven up demand and prices manufacturers are paying for rubber around the world.
Outlook for Supply
While demand for rubber is climbing, supply is facing short-term setbacks. Heavy rainfall in Thailand and the once-in-400-years eruption of Sumatra's Sinabung volcano have threatened supplies of natural rubber. In addition, high crude oil prices are set to drive up the cost of synthetic rubber.
Globally, microcyclus ulei (leaf blight) virtually wiped out South American rubber production and has taken a foothold in Asia. To battle the disease, plantation owners are working to develop resistant strains of rubber trees. For example, Michelin's Brazil-based Ouro Verde (Green Gold) Project focuses on increasing the availability of resistant trees and helping family farms become sustainable growers, which will double rubber production on the former Michelin plantation.
Over the long term, rubber supplies are expected to rebound and then increase as countries like Cambodia and Laos expand rubber planting. The two countries are poised to play a much larger role in world rubber markets by 2020.
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