Rubber demand to drop this year
Producers cut exports to prop up rubber prices
By Dave Hannon -- Purchasing, 3/19/2009 9:29:00 AM
A leading authority on the rubber market said this week that global demand for rubber is expected to be down by at least 5.5% this year and maybe more, as key end-markets, most notably automotive tires, and demand from its largest geography, China, continued to slump.
“If we are optimistic and use a base scenario, demand for natural rubber will be down by 5-5.5% this year,” Hidde Smit, secretary general of the International Rubber Study Group, told Bloomberg this week. “If you use other scenarios, the decline will be bigger.” Smit said rubber demand “may get better in 2010.”
China's demand may be the big factor that sways the rubber market and prices. While China plans to use nearly 8% more rubber this year than last, that growth rate is down from years past. And global demand for natural rubber is expected to grow only 5% in 2009, says Fan Rende, president of the China Rubber Industry Association, in a recent Reuters report. But China's efforts to stimulate its economy, including its automotive industry, could impact rubber demand trends if effective.
Natrual rubber prices have declined by as much as 50% in the past year, as demand tapered off. According to a recent update from the International Rubber Study Group, natural rubber prices recovered in mid-December 2008, “after plunging 65% from their peak recorded price in July 2008. Prices continued tracking crude oil prices over the fourth quarter of 2008 and into early 2009.”
Rubber producers are cutting back production dramatically in an effort to prop up prices. The three biggest rubber-exporting nations—Thailand, Indonesia and Malaysia—have agreed to cut their production of natural rubber by 10% this year, according to news sources, which could push prices up especially if Chinese demand does tick up further than expected.
“The 10% reduction in supply will be large enough to support prices,” Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co., told Bloomberg. “Chinese buying is another support.”
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