The slump in global natural rubber prices is probably over because producers are finding it harder to cover their costs and will cut output, according to Michelin & Cie, Europe’s largest tyremaker.
Rates have reached a floor of about $1.50 a kilogramme, Luc Minguet, senior vice president and chief procurement officer, said in an interview in Singapore on March 23. Futures averaged $1.583 in the past year and were at $1.433 on Tuesday.
“At this level of prices, we see supply starting to adjust, simply because people at plantations cannot make a living,” Mr Minguet said. “They reduce their production.”
Futures have tumbled 75% from a record in 2011 as maturing trees boost latex output and the economy of China, the world’s biggest consumer, expands at the slowest pace since 1990. The plunge has cut costs for tyremakers such as Michelin and Goodyear Tire & Rubber Co, and spurred efforts by Thailand, Indonesia and Malaysia to limit supplies.
Prices on the Singapore Exchange for technically specified rubber used in the tyre industry fell 5.4% this year, extending four annual losses, after reaching a peak of $5.75 in February 2011. Output from new plantations rose in 2013 and 2014 and demand was a little lower than expected, said Mr Minguet, who’s scheduled to speak at a Singapore conference on Wednesday.
An expansion of plantations across Southeast Asia from 2004 to 2011 has caused a supply surplus from 2011 through 2016, according to the Singapore-based International Rubber Study Group. The glut is poised to drop to 51,000 tonnes next year from 77,000 tonnes in 2015, it estimates.
Demand growing
Global demand for tyres will probably expand about 2% to 5% in the next five years because mobility is important for people and the number of cars will increase, said Mr Minguet, who’s been with Michelin for 12 years. Tyres account for 70% of natural rubber demand, the IRSG estimates.
Fluctuating oil prices and the “gloomy situation” in China are among factors that make the outlook for 2015 unclear, Mr Minguet said. China’s economy has cooled as officials rein in local-government debt, crack down on graft and strengthen environmental laws. The targeted expansion of about 7% this year would be the smallest increase since 1990.
The latex drips into a bowl which is fastened to a tree. It takes three to four hours to obtain a bowl full of latex each night. (Bangkok Post photo)
The market should be “very, very close” to balance this year or next, said Jean-Noel Quillet, managing director of Michelin’s unit in Singapore which procures natural rubber for the group. “There’s an adjustment going on.”
Tyre sales
Global sales of light vehicles and trucks weighing less than six tonnes will probably rise 3.5% to a record 90 million units in 2015 and increase a further 4.9% next year, May Arthapan, a Bangkok-based director at LMC Automotive Thailand, said in an email March 18. Sales in Asia will expand 5.3% to an all-time high of 40 million units, data shows.
“Tyre manufacturers are concerned that prices are so low because there is a risk that plantations will be dug out,” said David Shaw, head of research at U.K.-based Tyre Industry Research. “We’ll see an increase in production of tyres as time goes on and if natural rubber isn’t available, that increases business risks,” he said in an interview March 23.
Passenger-car tyre sales will probably increase to 1.72 billion units by 2023 from 1.23 billion in 2014, said Stephen Evans, secretary-general of the IRSG. The sale of tyres used on commercial vehicles will reach 727 million units from 479 million, he said at the conference in Singapore on Tuesday.
While tyre sales for trucks and passenger cars expand slightly in North America and are flat in Europe, car tyre sales continue to increase in new markets such as China, India, Southeast Asia, Brazil and Mexico, Mr Minguet said.
“We are willing to grow in China, and we are growing in China,” Mr Minguet said. “We have significant investment plans in China, both for passenger car and truck tyres,” he said, without elaborating. Passenger car tyres contribute about half of Michelin’s sales and truck tyres about a third, he said.