Sharp rise in natural rubber prices

All grades of natural rubber (NR) are currently fetching very attractive prices, over US $ 2.50 per kilogram (Rs 260/kg). However before 2004, there was a problem for the rubber land owners to pay wages to tappers or for other workers working in rubber estates and in private lands owing to the very poor price of less than Rs 40/kg paid to the commodity. However, the Rubber Research Institute (RRI) gave the correct signal to the rubber farmer at that time to hold onto their plantations predicting that the price of NR should shoot up to $2 kg level. Some of the plantations and impatient small holders took random decisions to either diversify their lands to other crops; mainly to tea, while others completely neglected their plantations without maintaining. Those who listened to the advice of the RRI are now reaping benefits of their decision while those who did random diversification into other crops are regretting. Today, the question asked by everybody is that what would be the future of the NR industry, would the demand for NR increase or will the prices crash again to uneconomic levels to maintain rubber farms. Hence, there are rubber small holders and even estate owners who are still not convinced about the future of rubber to invest money on replanting. Hence, the rubber replanting rate even now is unsatisfactory even with the extended subsidy paid by the Rubber Development Department for replanting.

One of the other obstacles for this programme of replanting is non availability of plants at the correct time to cater to the demand. Hence, this article was prepared on the figures given by the Secretary General of the International Rubber Study Group (IRSG) during his keynote speech to the International Rubber Research and Development Board (IRRDB) symposium held in Cambodia in November last year to enlighten rubber farmers both big and small on the increasing demand for NR in the future and thereby the stable and high price predicted for the commodity for the future too.

According to the latest natural rubber consumption figures in 2006 China consumed nearly 25% of the total world NR consumption, while USA in the second place was able to consume only half of that - 13% of the total. Japan in the third place has consumed 9.5% of the total while India consumed 5%.

With the rising price of NR in the world market and in the light of the expected short fall of NR supply to the market, all major tyre producers are now taking steps to minimize NR usage in tyres. In order to do that, they have designed wheels with spokes for cars where the rubber requirement is minimal.

Further, they are trying to increase driving distance per tyre to 100,000 km level. Increasing the ability to rebuild tyres at least four times by strengthening the carcass of tyres is another strategy to minimize NR usage in tyres.

With all such developments the tyre manufacture, country wise in 2020 is predicted by the IMF as follows: USA - 134 million tyres, Europe another 456 million tyres, Japan 123 million tyres, China 377 million tyres and India 50 million tyres which makes the total passenger car tyre production in the world 1.5 billion by then.

In addition to this there will be another 670 million commercial vehicle tyres produced by the world by 2020.The US component of commercial vehicle tyre production by 2020 will only be about 39 million while China would be 238 million. According to IMF predictions the major NR consumer by 2020 would again be China consuming 33% of the world consumption while USA consumes 7.7%. With the latest developments in India to date, their NR consumption by 2020 would be 7.5% which is only two decimals below the US consumption. Based on these figures the total NR consumption in the world would be about 13.5 million metric tons while the total NR production remain at 13.1million mt leaving a shortfall of 0.4 million Mt. But the deficit of NR production predicted in 2005 was 3 million metric tons. The total SR and NR usage by 2020 would be about 31.3 million tons, thereby maintaining the 43.3% NR consumption by 2020 too.

Production of NR will remain high all over the world if high prices prevail in the future too. Possible substitution between synthetic rubber and NR is very limited. Ever increasing oil prices lead to high synthetic rubber prices. Hence, there is no reason for the NR producers to worry about the price in the future.

If more and more rubber is grown in all wet and intermediate climatic areas of Sri Lanka, not only will our economy improve; but this country will remain to be a pleasant country to live with finely maintained bio diversity and also without a drought in any part of the country.