Consumers to pay price for global rubber shortage

Tyremakers will pass on costs as rubber consumption outpaces supply from Asian plantations. Photo / Peter Meecham

Bridgestone, the largest tyremaker by sales, is raising European prices for the second time this year and Goodyear Tyre and Rubber is charging more as rubber gains on prospects for the biggest shortage since 2007.

"Drought earlier this year and heavy rains later on hampered tree-tapping across Asian plantations," said Pongsak Kerdvongbundit, managing director of Phuket, Thailand-based Von Bundit, the largest natural-rubber producer and exporter in the world's biggest supplier.

"Global production will lag behind soaring demand for at least another two years."

Stockpiles of the raw material, also used in gloves and condoms, will drop 12 per cent to 67 days of demand next year, the lowest level in at least a decade, according to Goldman Sachs. Consumption will outpace supply by 127,000 metric tonnes, the most since 2007, the bank estimates.

Futures in Singapore may jump 20 per cent by March, says Makoto Sugitani, a senior director at Newedge Japan, who predicted correctly the rally in January. That would mean a record US$4.20/kg ($5.75).

Sales of rubber are increasing the most in six years, helped by what the International Monetary Fund says will be the fastest global economic growth since 2007.

Rain and flooding in Thailand and Indonesia, the top producers, drenched farms and curbed harvesting. Michelin and Cie, the world's second-biggest tyremaker, said in July that commodity costs would cut full-year earnings by as much as €650 million ($1.2 billion).

Futures may climb as much as 14 per cent to US$4/kg by March on the Singapore Commodity Exchange, according to the median estimate of nine brokers and analysts surveyed by Bloomberg.

Prices reached a record US$4.11 on April 15 and closed at US$3.50 on September 20, for an advance of 22 per cent this year.

Inventories will drop nearly 6 per cent to 2.05 million tonnes next year, for a third annual decline, Yuichiro Isayama and three other analysts at Goldman Sachs in Tokyo.

La Nina, a phenomenon linked to extreme weather, is likely to intensify at the end of the year, according to the Thai weather office. That may cause higher-than-normal rainfall in the south, which has 68 per cent of the country's plantations.

Global consumption will climb 9.4 per cent this year to 10.31 million tonnes, the fastest increase since 2004, according to the Singapore-based International Rubber Study Group, which says it has 16 countries and the European Union as contributing members.

Demand will exceed output by 60,000 tonnes, from a surplus of 237,000 tonnes last year.

Bridgestone announced European price increases on August 30. Goodyear and Cooper Tyre and Rubber, the two largest United States tyremakers, confirmed last week they would raise US prices from next month to recoup higher raw-material costs.

World car sales will increase 8 per cent to 68.5 million units this year and 7.2 per cent to 73.4 million units next year, according to Ashvin Chotai, London-based managing director at Intelligence Automotive Asia.

The economy in China, the biggest car market, will expand 8.9 per cent next year, more than three times the pace of the US, according to the median of as many as 60 economists' estimates compiled by Bloomberg. Even as governments fret about deflation, extreme weather from drought in Russia and Ukraine to flooding in Pakistan and Canada is driving commodity costs higher.

Wheat as much as doubled since June, while corn rallied to a 23-month high, coffee reached a 13-year peak and cotton advanced to its most expensive since 1995.

A United Nations price-index of 55 foods last month rose to its highest level since 2008.

"Rubber may chase a rally in grains and soft commodities as investors are searching for better places to put their money," said Tokyo-based Sugitani of Newedge.

Growth in demand for rubber may be undermined by a faltering recovery. Global economic expansion will probably slow in the second half of this year and in the first half of next year, IMF economists said.

Bridgestone and Goodyear tyremakers are passing on the higher costs. Bridgestone said last month that it would raise tyre prices in Europe from October by as much as 6 per cent.

Goldman Sachs' Isayama said it was impossible for tyremakers to substitute immediately synthetic for natural rubber.

"Demand keeps expanding and supplies are at risk," said Tetsu Emori, a commodity fund manager at Astmax in Tokyo, who says prices may reach a record by early next year. "The situation may reach a critical point."

- BLOOMBERG