By Mark Yost
In 2012, the natural rubber industry had a 400,000-tonne surplus: 200,000 tonnes in warehouses in
"Chinese tyre manufacturers are holding inventory," Simmons said. "They're supporting stockpiles until tyre prices come up."
Viewed more broadly, Simmons said the natural rubber market is "entering a period of structural imbalance. Something has to give; probably less tapping”, meaning production at rubber plantations.
Simmons went on to explain that the natural rubber market is in the middle of an age-old conundrum. Higher prices typically lead to more planting, but there is a lag of 6-7 years between planting new trees and tapping new product. So producers who planted trees in 2007 amid rising prices now find themselves trying to sell more material into a market that has seen demand drop sharply.
In his presentation to the conference, Simmons noted that rubber production has risen by about 4% a year since 2007. Natural rubber prices peaked in 2011 at about $6,000/tonne, Simmons said, a 15-fold increase from prices of $400/tonne just a decade ago. On the Malaysian Rubber Exchange, SMR 20 NR prices were at $2,484/tonne FOB (free on board)
Natural rubber producers are further vexed, Simmons said, by the fact that as natural rubber prices rose, tyre makers, which use about 75% of global NR production, began substituting less-expensive synthetic rubber such as styrene-butadiene-rubber (SBR).
"In 2011, natural rubber was higher, so tyre makers were switching to synthetics," Simmons said. "Now I think you're going to see the industry substituting natural rubber for synthetics."
That is potentially bad news for SBR producers, who have seen prices drop sharply over the past few months due to significantly reduced worldwide demand for replacement tyres. In July, Goodyear reported earnings for the first six months of 2013 and said it had produced 1.6m fewer tyres than in the same period a year ago.
The monthly contract price for US SBR 1502 has fallen from 117 cents/lb ($2,579/tonne, €1,934/tonne) a year ago to 85.5 cents/lb in September.
As for natural rubber, Simmons said that
He also noted that
Simmons estimates that despite sharp downturns in replacement tyre sales in the
Despite the abundance of natural rubber,
"One of the dangers the market faces is it's in a period of surplus, a period of low prices and very little new plantings," he said. "So you can end up in a position with no new plantings, no new production. Natural rubber producers will likely go from a period of glut to a period of deficit. But in the long term, the market will balance itself out."
($1 = €0.75)