Rubber Pricing – 4 surprising reasons why pricing may remain high

According to the International Rubber Study Group, world output of rubber increased around 10% in 2010 at 24.3 million tones.  Synthetic rubber and Natural Rubber was 55% and 45% respectively. 

Supply and Demand may only be part of the story for current rubber prices according to a recent report by ANRPC (the 11-nation association of Natural Rubber Exporting Countries that make up 92% of natural rubber output).  Their recent report has noted four factors that can keep natural prices high during the short term.

Short Term

1. OPEC oil pricing – Saudi Arabia’s new $120 billion public spending will keep demand for higher oil profits
2. Pressure on US dollar – since global rubber prices are mostly traded in US dollars, lower valuation pressures exporting countries to increase pricing
3. Speculation – continued low interest rates in US is speeding the flow of Hedge fund speculation into Asia-Pacific region.  Rubber prices are then driven up or down by quotations in the futures market and government policies, not purely by demand.
4. China’s demand – while automobile sales are slowing, China still remains 52% of natural rubber consumption

Long Term

1. Weather and Government Policies – while adverse weather in Southeast Asia has impacted current rubber pricing, the longer term story is difficult to predict as government backed expansion of rubber plantations in Thailand, China, Vietnam, and the Philippines could lead to overproduction just as global economic demand flattens and perhaps ultimately leading to a collapse of rubber pricing.
2. Rubber Farms – forecasts remain problematic as the Southeast Asian rubber market is comprised of almost 10 million small and marginal producers whose simple preference of when to uproot older trees, collectively impact futures pricing .

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