Thai floods send rubber to record high | Tire Pyrolysis is the Solution

The price of natural rubber, the raw material used in tyres, condoms and gloves, has surged to an all-time high after the worst floods in decades hit Thailand, the largest producer.

Physical rubber prices in Thailand have jumped 7.4 per cent in a week to $4.35 a kg on Monday, according to the Rubber Research Institute of Thailand.

That exceeded the level hit in April when rubber broke one of the longest standing price records in commodity markets, surpassing the peak of 1952 when the rise was driven by fears about the spread of the Korean war that triggered panic buying. It has tripled since early 2009.

The sharp rise in prices is hurting tyremakers and forcing increases in the price of tyres. Bridgestone, the Japanese-based company that is the world’s largest maker, said on Friday that it had been “plagued” by higher raw materials costs as well as the strength of the yen.

Some tyre companies have raised prices three times this year, and industry executives say further price increases are likely.

Roy Armes, chief executive of Cooper Tire & Rubber of the US, said he expected commodity prices to continue rising into next year. “We expect raw material costs will continue to be elevated in the near future and have implemented price increases around the globe,” he said.

The most recent jump in rubber prices is the result of heavy rains caused by the La Niña phenomenon that have hit the key producing region of south-east Asia, disrupting tapping.

In Thailand, which accounts for 31 per cent of global natural rubber output, the rains have flooded large swathes of agricultural land. Production was hit earlier this year by drought caused by the opposite phenomenon, El Niño.

The tightness in the rubber market is unlikely to be temporary, analysts warn. Demand is growing apace, driven by voracious consumption in emerging markets, led by China. The country’s consumption of truck tyres in new vehicles – each of which uses about 20kg of rubber – grew 57 per cent in the first nine months of this year compared with 2009, according to Pirelli.

Jom Jacob, senior economist at the Association of Natural Rubber Producing Countries, expects Chinese natural rubber imports to rise 41.5 per cent in the fourth quarter from the same quarter a year earlier.

At the same time, persistent underinvestment into new rubber supply means that tightness is likely to continue. Kona Haque, agricultural commodities analyst at Macquarie, said that “a large proportion of existing rubber-yielding trees in major producing countries were planted in the 1980s, meaning they are at a stage when yields start declining”.

Mr Jacob said: “The possibility for any marked change in supply scenario is remote in 2011 as the yielding area is unlikely to expand before 2012.”

Source: Financial Times

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