Firestone tire recall could spark rubber pricing hike

By Christopher Reilly -- Purchasing, 9/7/2000

The world rubber market could soon see a demand and pricing boost if the recent voluntary tire recall announced by Bridgestone/ Firestone Inc. of Memphis, Tenn., causes the company to buy additional natural rubber for replacement tires, according to market observers. Bridgestone/Firestone is a major buyer of natural rubber, annually consuming about 200,000 tonnes of ribbed, smoked sheet grade rubber.

In August, Bridgestone/Firestone announced the recall of 6.5 million tires after a U.S. safety authority investigation. The voluntary recall involves Bridgestone/Firestone's Radial ATX, ATX II, and Wilderness AT tires, which are primarily used on trucks and sport-utility vehicles.

As a result of the recall, and because recycled material is not used in the manufacture of new tires, Bridgestone/Firestone will likely have to purchase as much as 20,000 to 30,000 tonnes of new natural rubber, which could drive up rubber demand and pricing.

Analysts, however, point to a gradual demand increase, rather than a sharp spike. This is because Bridgestone is expected to buy the extra natural rubber in increments, which would cause a gradual increase in rubber demand.

For an idea of the recall's impact on rubber pricing, buyers should monitor pricing from Thailand, Indonesia and Malaysia, since about 80% of the world's supply of natural rubber comes from these three countries.

According to pricing data from the Malaysia Rubber Board, a rubber market research firm located in Kuala Lumpur, Malaysia, prices for natural rubber (ribbed, smoked sheet grade) have followed a very erratic trend this year. In January, prices averaged about $1.39/lb. By mid-March, prices rose to an average of $1.72/lb, then fell to about $1.55 in April. From there, prices saw some downward pressure and bottomed out at $1.41/lb in July.

With Bridgestone's tire recall, natural rubber buyers should see pricing gradually firm up in the next few months. Buyers could see Malaysian natural rubber prices average about $1.53 for September, about $1.58/lb in October and around $1.60/lb in November. Analysts suggest buyers can look for continued firming in December, up to about $1.63/lb.