Natural Rubber Price Runs at High Concussion   
By Chen Zhongtao China Logistics Information Center

In the past 12 months, price of natural rubber had been soaring in a fairly high level around worldwide markets, and likewise in China, the price of natural rubber in Shanghai Futures Exchange market kept increasing and pointed to historic high, at RMB43 500/t on Feb 9, 2011, more than twice that eight months ago. Obviously, the high price results in a severe and direct impact to tire producers and most of them got into trouble of cost production.

2010 review

With a fast growth in downstream industries like automobile and tire, it had a strong increasing tendency of China's natural rubber demand in 2010, thus it appeared that the price currently holds above RMB40 000 per ton by the influence of several factors.

1. Domestic production down and import up

Data from authority showed in 2010 China produced 580 000 tons of natural rubber that was 8% lower than in 2009. The main reason for downturn in 2010 could be ascribed to natural disasters in 2010, which drought in Yunnan province, southwest China and rainstorm in Hainan province, south China those are believed to be the main regions of domestic natural rubber production.
    However, natural rubber import behaved better in 2010, with import volume of 1.86 million tons, increased 8.8% compared with that in 2009. Respectively, from Fig 1 below it indicated the import amount in the second half of 2010 dominated increasing tendency in the whole year.

2.  Fast track in consumption

By the estimation from CLIC (China Logistics Information Center), there were totally 7.8 million tons of rubber used up in China mainland in 2010, 15% higher than the previous year, including a rise of 12% in 3 million tons of natural rubber and 17% in synthetic rubber.
    Additionally, the desirable consumption in China's rubber might be able to reflect by the statistics in automobile and tire industries. In 2010, vehicle population in China has exceeded 18.654 (cover tires included) which were 31.9% more than last year, while it had 776 billion tires been required that nearly one fifth over that in 2009, Fig 2.

3. Price: shocking the uplink

The factors such as natural disasters in south China and over sea influence resulted in the fluctuating price for natural rubber in 2010, but it seems in sufficient to stop the increasing tendency especially in the second half of 2010 that it rose up to annual highs at RMB39 800 per ton in November. Overall, within 2010 it had a 24.9% growth rate in natural rubber price while 62.6% with the comparison of the year before.

4. Challenge for tire factories

Theoretically, it had been calculated that 65% of natural rubber in market were applied in tire production and the price of natural rubber approximately took over 43%. But from 2010, natural rubber price kept in a fairly high level and it caused over the half cost of production had to be spent in buying natural rubber that seriously troubled most tire producers. According to official statistics, it had 30% profit lost for tire industry in the first 11 months of 2010 compared that one year ago, and about 26% factories suffered loss which probably slowed the development of Chinese tire industry by more than 30% of whole-year profit.
  
5. What is pushing up the price of natural rubber?

* Imbalance of supply & demand

The natural disasters in main regions of natural rubber were the immediate cause for price increasing which directly shock the domestic production. On the other hand, the unstoppable development of China's automobile made the great need in rubber.

* Remote effects by oil and synthetic rubber

As a substitute, synthetic rubber kept price in a high level as the same as natural rubber, while the oil price sharply increased in 2010 and it was believed to be 0.75 in related coefficient with natural rubber price.

* Capital speculation

The coming of fund pushed the price of natural rubber increasing indirectly.

Year 2011 in expectation

Generally, it was considered that the increasing tendency of natural rubber price would be continued.

    1. Greater domestic demand

With the stimulation of Twelfth Five-Year Program, the development of automobile especially new energy vehicle is currently getting involved in the foundation of domestic consumption, and it was predicted that the sale volume of vehicles might be able to reach over 19 million that still kept over 10% growth rate, thus which is transferred to the consumption of natural rubber would be 3.3 million tons or 10% higher.

    2. Global market influences

Supply: uncertainties like climate would make an unobvious increasing in natural rubber production globally, which authority predicted the growth rate is likely to be 5.5%.
    Demand: the same as domestic market, automobile demand in other countries will be better than that in 2010, thus it might have extra 6.6% rubber being required in all related industries.
    Therefore, the supply of rubber seems still insufficient to demand, but the situation will be more positive than the previous year.

Suggestions

To get through the critical point, the following might be the suggestions for most tire producers
    1. Attentions to global market. The price of natural rubber was indirectly influenced by global economic.
    2. Highlight automobile industries. The increasing number of vehicle was the only route to higher profit in current situation.
    3. Climate. Obviously It is strongly relevant to the production of natural rubber.