Natural rubber prices have increased on multiple commodity exchanges to a level not seen in nearly three years. On the Singapore Commodity Exchange, a key global commodity exchange for rubber, the average price for a kilogram of rubber reached $2.02 (€1.87) in January 2024. On the Osaka Exchange, futures of rubber were traded at ¥283.60 ($1.93 / €1.79) per kilogram, while rubber futures also reached a 19-month high on the Thailand Exchange.
A combination of demand and supply factors have contributed to the significant price increases for natural rubber. On the supply side, an El Niño weather phenomenon impacting Southeast Asia, the world’s largest rubber producing region, has contributed to lower natural rubber production levels. Furthermore, global trade bottlenecks in the Red Sea and the Panama Canal have caused delays in rubber delivery schedules from rubber plantations in Southeast Asia to processing facilities in other regions.
In addition, manufacturers must currently pay premiums to secure limited booking and container slots. Shipping companies have increased war and cargo-protection premiums for vessels sailing through the Red Sea while also charging extra per container for voyages through the Panama Canal. Meanwhile, on the demand side, consumer demand remained largely resilient despite the threat of a global recession.
El Niño causes rubber production decline
Southeast Asia is the world’s largest rubber producing region. The region itself, consisting of 11 countries, contributes 90% of the world’s natural rubber supply. Major countries within the bloc involved in rubber production include Thailand, Indonesia, Vietnam, Malaysia, the Philippines, and Cambodia. Over the past winter, the region has been impacted by an El Niño weather phenomenon, characterized by extremely high temperatures coupled with below normal rainfall totals. This El Niño weather phenomenon has been one of the strongest since the turn of the 21st century. With the heat in Southeast Asia, rainfall has been significantly lower than normal across the region.
The combination of extreme heat and below normal rainfall has caused production of natural rubber to decline throughout Southeast Asia due to a multitude of reasons. Firstly, the lack of rainfall has caused soil moisture reserves to decline, resulting in less water intake for rubber trees. Rubber trees become more stressed with less water intake, consequently producing lesser amounts of latex.
Furthermore, higher temperatures also heighten the risk of viral and fungal outbreaks in rubber plantations. Scientific studies have shown that rising increments in mean average temperature coincide with Rubber Leaf Fall disease. The disease creates significant defoliation of rubber trees, resulting in reduced latex yield during the harvesting season. Since 2019, outbreaks of the disease have been recorded in Indonesia, Malaysia, Thailand, and Vietnam. It is estimated that 437,000 hectares of rubber tree acreage have been impacted by the disease.
Finally, the increase in temperature has also impacted harvesting schedules at rubber plantations throughout the region. Unbearable daytime temperatures have forced rubber plantation workers to shift their tapping activities to the night. The lack of sunlight and limited working hours have also contributed to lesser rubber being harvested. In 2024, natural rubber production is expected to decrease by up to 10% in Thailand, while rubber production in Vietnam could fall by 3.5%. In Malaysia, natural rubber production has already declined by 9.2% from February to March. The Ivory Coast could surpass Indonesia as the world’s second-largest producer.
Automotive and medical device industries most impacted
The increase in natural rubber prices will have an impact on a majority of manufacturing processes. It is estimated that 40,000 commercial products use natural rubber in their production processes as the commodity provides distinct versatility and purposive features. Rubber is used in the manufacture of seals, tubes, insulators, and padding in a wide variety of industries due to its heat, electric, and non-slip qualities. Both automotive and medical industries would be impacted by further price increases.
The automotive industry utilizes rubber in a variety of ways. Not only is rubber used in tires, but it is also used in the manufacture of brake padding, floor sheets, and automotive seals. It is estimated that 65.7 kilograms of rubber is utilized in the manufacture of one vehicle. In the United States, about 80% of the rubber consumed in the country is used in the automotive industry.
Despite the economic headwinds, automobile sales topped 90 million units globally in 2023. Early indicators suggest that demand for automobiles will remain just as robust in 2024. As demand for automobiles globally increases, the shortage in natural rubber threatens to hamper production, especially in the tires sector. In Indonesia, the Indonesian Tire Company Association (APBI) has warned that the national tire industry is under the threat of a shortage of natural rubber. The association claims that rubber plantations in the country have reduced production by as much as 50%, impacting local tire production.
Rubber’s compatibility with sterilization techniques and its relatively low cost makes it a preferred commodity for the medical device industry. Rubber is used to manufacture gloves, protective equipment, injectables, catheters, pacemakers, and even prosthetics. In the U.S., medical gloves and protective equipment manufacturers have been urging the government to consider increasing and diversifying its source of natural rubber due to supply disruptions in Southeast Asia. If supply shortages persist, manufacturers of medical equipment may consider alternative raw materials for their production processes to get around price increases or supply shortages of natural rubber. However, alternatives such as silicone and thermoplastic elastomers are already much pricier than rubber.
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