SURGE IN PRICE OF NATURAL RUBBER SPARKS CRISIS IN TIRE INDUSTRY

From the perspective of the small time rubber farmer, life has been a rollercoaster ride recently. After reaching a high of USD 3.982 per kilo in February 2012, the price of natural rubber declined steadily due to the global slowdown in the automotive industry and glut in the supply of natural rubber. More and more countries like China and Vietnam took to the cultivation of natural rubber on a large scale leading to a case of oversupply of natural rubber. With oil prices falling, the price of synthetic rubber which is made from compounds obtained from crude oil also started declining and this too contributed to the drop in demand for natural rubber. The situation has now undergone a sea change in recent months.

Thailand is one of the major producers of natural rubber, with the country accounting for almost 35 per cent of the global output of natural rubber. Massive floods which took place recently in the southern part of the country, where most of the rubber cultivation takes place, have had a severe impact on the

production of rubber. These widespread floods have affected infrastructure and transportation in as many as 12 of the country’s 27 provinces. The combination of drought and severe floods have taken a heavy toll on rubber farmers.

With demand set to outstrip supply, natural rubber prices have been zooming at an unprecedented rate. From January to January 2017, the price of natural rubber increased from USD 1.17 per kilogram to USD 2.22 per kilogram and this trend is expected to continue. With OPEC countries joining hands to cap the global supply of crude, the price of synthetic rubber has also experienced an upswing.

This is good for cultivators of natural rubber in other countries like Vietnam, Malaysia and India. However, tire manufacturers and retailers have been caught by surprise and are in a position where they are struggling to control costs without passing on the price increases to consumers. Many leading tire manufacturers like Goodyear, Michelin, Nankang, Deestone, Kenda, Zhongce Rubber Group and Kumho have had to increase tire prices in view of the price increases in the cost of raw material like natural rubber, synthetic rubber, carbon black and steel wire.

They have had to adjust their inventory levels of raw materials and finished products in light of the expectation that prices will increase even further. Obviously, no tire manufacturer would like to sell tires at a loss, but squeezed between the rising cost of raw materials on one side, and increasing competition on the other, this is definitely a moment of crisis for the tire industry.