Natural rubber bounces back amid crude rise

SINGAPORE: From tyres to condoms, manufacturers are beginning to eye a return to natural rubber as stubbornly high crude oil prices drive up the cost of making the products from synthetic materials.
But while farmers in Asia are taking advantage of stronger natural rubber prices, they say their productive capacity is limited, especially during the current monsoon in Southeast Asia where heavy rains hampered the tapping of rubber trees.
Rubber prices have risen 4 per cent to around US$1.28 a kilogram since mid-September, when crude oil began to rally above the US$50 mark. In contrast, analysts estimate the cost of synthetic rubber has soared by about 70 per cent in the past year.
"We will try to switch to using cheaper material whenever we can," said a spokesman for Sumitomo Rubber Industries Ltd, one of Japan's largest tyre manufacturers.
"It's possible that we will be switching back to natural rubber next year," he said.
Tyre makers now use a near equal combination of natural and synthetic rubber, which is derived from petrochemical feedstock.
Global natural and synthetic rubber consumption is expected to rise around 5 per cent to 20.04 million tons in 2004 from 19.06 million tons in 2003, with ample stocks in China and a slow recovery in the US economy limiting growth.
Next year's consumption was projected to rise nearly 5 per cent to 20.99 million tons.
The ratio of usage for synthetic rubber to natural rubber, however, remained unchanged this year at 59 per cent for synthetic rubber and 41 per cent for natural rubber.
"For more than 10 years, the ratio was 60:40. But now, more natural rubber is being used," said A.F.S. Budiman, secretary-general of the International Rubber Study Group.
Analysts believed tyre manufacturers would use more natural rubber this year because of prospects of further price gains in synthetics. Glove manufacturers may also shift to natural rubber.
"With the increase of oil prices, synthetic glove prices will rise accordingly," said James Liew, an official with the Malaysian Rubber Gloves Manufacturers Association, which groups the world's largest makers of the product.
But growth is limited by a number of constraints in Thailand, Indonesia and Malaysia, which together account for 60 per cent of the world's natural rubber output.
Dealers said production had already reached its peak in Thailand, the world's leading producer, because farmers had been aggressively tapping latex to take advantage of a rebound in prices.
Thailand's natural rubber output is estimated to rise to 3.03 million tons in 2004 from 2.86 million tons last year, according to the Thai Agriculture Ministry.
Natural rubber originates from the Hevea tree. Farmers collect the latex by shaving off a thin part of the bark.
"We wanted to further increase rubber latex, but we just cannot, at least in coming months," said Wate Thainugul, manager of the Thai Rubber Association.
But he said that thanks to high rubber prices farmers now have an incentive to take care of their trees, which is a turnaround from 2001, when prices slumped to 30-year lows below 50 US cents a kilogram, promoting producers to cut output.
Rubber trees are tapped all year round. In good weather, farmers tap trees for three consecutive days before letting them rejuvenate for a day. Some farmers tap the trees every other day.
Industry officials believe rubber prices may have peaked as higher energy costs will likely dampen consumer demand, especially in the automobile industry.
Dealers in Thailand said soaring crude oil prices would only have a short-term impact on Thai rubber futures.
"I do not think the honeymoon period will last long because everybody is concerned about the economy," said one broker.
"If the world economy is hit by the oil price, demand for both natural and synthetic rubber would also be affected because we will see a slowdown in the automobile industry," he said.
Agencies via Xinhua(Business Weekly 11/10/2004 page20)