With presidential primaries on the horizon and every form of media reporting on the candidates, many people have politics on the mind. Before too long, lawn signs and car stickers will be out in force because supporters can exercise their right to free speech in an election. What should be a celebration of democracy has turned into the world’s most popular reality television show.
Presidential elections aside, politics within the natural rubber (NR) industry could be indicating that recent events might lead to another shortage. According to Salmiah Ahmad, CEO of the International Rubber Consortium (IRCo), “the market’s perception of high-level rubber stock, particularly at producing countries, needs to be corrected. Our analysis is that we don’t have as much stock as other organizations say we do...there are discrepancies.”
By itself, this statement might be a major cause for alarm. Over the past year, the price has been as high as 83¢/lb. in the spring and most recently averaged 59¢/lb. In fact, since the peak price of $2.80/lb. in February 2011 (the highest price in 30 years), the price has steadily dropped. This would seem to support the position of the International Rubber Study Group that warned of a potential oversupply of NR for the next few years with a surplus approaching 3 million tons in 2020.
Back to Ahmad.“The decrease of natural rubber production…particularly the production in Thailand and India, would lead to a possible global natural rubber shortage in 2015,” he said. Since the countries that belong to IRCo produce almost 70% of the global NR supply, this might be seen as a sign that the current trend towards lower prices is about to change.
However, the Assn. of Natural Rubber Producing Countries, which represents about 93% of the global NR supply, forecasted a 3.2% growth in production for 2015 earlier this year. It referenced reduced demand from China and the recovery of the U.S. market as two of the reasons why it expected production to grow. A few months later, it switched its position and called for producers to cut output by 10% next year to reduce global stocks and shore up pricing.
Meanwhile, the Indonesian Rubber Assn. recently reported that production in 2015 is unchanged when compared to last year, but El Nino dry weather and haze conditions resulting from major forest fires will hinder production in 2016. It is reluctant to give any specific production forecast and will only say that it will go down next year. At the same time, it is embarking on a major replanting initiative while it undergoes talks with the government for additional funding to replace/expand production.
I have described the NR industry as the perfect example of chaos theory for years. It is incredibly complex, has a lot of little pieces that play a major role, and will always be an agricultural product that is reliant on a very specific climate. That being said, I believe that one of the best indicators of the economic health of any agricultural commodity is still price, and the price of a pound of natural rubber has not been this low since December 2008. Likewise, prices have been steadily falling since $2.80 rocked the global tire industry and they appear to be stabilized.
For those wondering if NR costs will force tire manufacturers to raise prices again, remember that the art of politics is telling people what they want to hear. There is probably a little bit of truth to each position. You just have to decide which one you are going to believe and then cast your vote.
Kevin Rohlwing can be reached at [email protected]
