Natural Rubber Price Maintained at a High Level

By Chen Zhongtao

The drastic increase of oil price in the international market in 2005 has aroused general concern. The supply shortage of natural rubber as a strategical material in China has also been aggravated. The price of natural rubber has been kept at a high level since August 2005. According to the projection made by many experts, the price of natural rubber will continue to maintain at a high level in the next few years and this phenomenon will sustain in the near future.

   1.  The total demand in the international market is making a steady increase

According to the statistical data from IRSG, the consumption growth of natural rubber in the world was equal to its output growth with almost no inventory increase in previous years. With the sustain demand of growth in 2005, the supply of natural rubber became tight. The output of natural rubber in the world was 8.22 million tons and the consumption was 8.29 million tons in 2004, therefore the supply and the demand were basically even. The demand of natural rubber in the world increased by around 5% to reach around 8.7 million tons in 2005, but the output was at most 8.3 million tons, leaving a shortage of around 400 thousand tons. It is expected that the demand will be more than 10.0 million tons in 2010 and reach 17.0 million tons in 2030. There will be a worldwide supply shortage of natural rubber in the next 10 years.


  2.  The supply shortage in the domestic market is gradually increase

With the rapid development of the national economy in China, the consumption of natural rubber and its supply shortage is gradually increased. The rapid growth of the automobile industry has promoted the development of the tire industry. China has become the second largest tire producer and exporter of the world in 2003. The output of tires in China showed a rapid increase once again in 2005 and reached 318.1991 million pieces, an increase of 28.3% over the previous year. The rapid development of the tire industry and the construction of tire plants by large foreign tire companies such as Michelin, Bridgestone and Goodyear have led to a drastic increase of the rubber consumption in China.     The rubber demand in the tire industry is mainly concentrated on natural rubber, which stimulates a rapid growth of natural rubber consumption. The consumption of natural rubber in China was more than 1.8 million tons in 2004, accounting for 21.5% of the world total and reached around 2.2 million tons in 2005, an increase of around 19% over the previous year. According to the projection made by IRSG, the consumption of natural rubber in China will reach between 3.0 and 4.0 million tons in the next 10 - 15 years, accounting for a quarter to one third of the world total.   In terms of supply ability, natural rubber producing areas in China are mainly distributed in Hainan, Yunnan and Guangdong provinces. The output of natural rubber in these three provinces accounts for 45%, 35% and 10% of the national total respectively. The remaining 10% is in Guangxi and Fujian provinces. The natural rubber planting area in China was 630 thousand hectares in 2004 and the output of dry natural rubber was less than 600 thousand tons. Even if the maximum development of resources is achieved in these three provinces, the output of natural rubber can only reach around 700 thousand tons per year.    In terms of resources supply growth potential, due to the constraints from various factors, there is no great potential for a drastic output increase of natural rubber in China. Factors restricting the growth of natural rubber resources in China as follows:    (i) Limited tropical land resources: Rubber plants are tropic crops. There is only 5% of tropical land resource that is suitable for rubber planting within China. The rubber planting area in China is 630 thousand hectares nowadays. There is other 340 thousand hectares suitable for rubber planting. Even if all the 970 thousand hectares area is used to plant rubber, the total planting areas will be still less than one third of that in Indonesia. Based on the present developmental speed, Vietnam will soon overtake China in rubber planting area.   (ii) Insufficient labor resources: Rubber cutting is a labor-intensive and time consuming production activity. With the development of the social economy and the improvement of people's living standard, there will be less workers left in the rubber planting industry.   (iii) Inadequate seed resources: China has nearly 6 000 varieties of seed resources today, being less than a quarter of the world total. Besides, research expenses are insufficient and technical innovation is lagging behind. The genetic breeding of rubber plants in China is already affected.   With the further demand increase, the self-sufficiency rate of natural rubber in China was reduced from 60% in 1999 to 30% in 2004. According to the projection made by experts, the self-sufficiency rate of natural rubber in China will continue to drop to less than 20% in the next few years.


  3.  The export resources in the international market are having a constant reduction

Natural rubber is planted in 43 countries and regions in the world. Indonesia, Thailand, Malaysia and India are the four major rubber planting countries, which account for approximately 75% of the world total planting area and the output accounts for around 77% of the world total. Malaysia has conducted a readjustment for the industrial distribution in order to reduce rubber planting and increase oil palm planting.  The process is now completed and preliminary results have been produced. Malaysia has shifted from the biggest exporter of natural rubber primary products in the world to an exporter of natural rubber processed products and an importer of natural rubber primary products. Thailand and India are the biggest exporters of natural rubber primary products in the world today. With the acceleration of industrialization and the readjustment to industrial distribution, their export amount will gradually reduce in the next few years. The output of natural rubber in Vietnam and Cambodia will have a considerable increase with the expansion of the rubber planting area, but the total output will still be small.    It is important to note that the major natural rubber producing countries have put more restrictions on natural rubber export in recent years. According to the survey performed by Guangdong Land Reclamation Bureau on major rubber producing countries in Southeast Asia, Thailand, Indonesia and Malaysia, it showed that they have quickened the pace of industrialization and their rubber consumption have had a drastic increase in recent years. They have taken various measures to restrict natural rubber export. The output of natural rubber in these three countries accounts for around 69% of the world total. The reduction in natural rubber export in these three countries will have great impact on the rubber supply in the international market.