(Source: idorfman.com)
The EIU study cited the primary factors causing the increase in raw rubber prices: a strong industrial demand from China, and a deterioration of the supply outlook, particularly among Southeast Asian producers - a consequence of severe weather within the region.
"It will take over a year for the rubber market to return to balance, and consequently prices will remain well supported, easing off only gently in 2007-08," says the EIU. The study estimates rubber costs will rise by 27 percent in 2006, and it forecasts a decrease of just 2 percent in 2007. It is interesting to note that the study showed that the increase in rubber prices matches that for crude oil this year.
Thinking beyond the horizon According to the International Rubber Study Group (IRSG), rising material costs and expected rubber shortages over the next five years are driving many tire manufacturers' efforts toward sustainable manufacturing. Manufacturers are working to develop product innovations that reduce dependency on expensive raw materials, while rubber producers are maximizing output from existing trees. Despite planting new rubber trees, it takes six years of growth before they can be tapped. Thus, there will be a lag as producers struggle to keep pace with increasing world demand. Few manufacturers have resolutions for the short term. A few tire companies, such as Japan-based Yokohama, have announced a new round of price increases set for October. The positive performance of the Japanese yen against other currencies offers some hedging relief, just as it has improved Japanese automakers' bottom lines this year. With that unique advantage, any short-term loss in demand is partly offset by the currency windfall. The IRSG also notes that DuPont expects to begin production in 2007 of high-performance thermoplastic resins and elastomer products made from bio-based material. The products, targeted for automotive, electrical, electronic and other industrial markets, will be made from corn sugar rather than petroleum. As an added benefit, DuPont's new bio-based materials require approximately 40 percent less energy to manufacture than their petrochemical-based counterpart. New products made from bio-based materials will contribute to the company's goal to drive 25 percent of its revenue from renewable resources by 2010. "When these new products are commercialized, we will be able to offer our customers the benefits of renewably sourced materials and a reduced dependence on petrochemical sourcing," says Keith Smith, vice president and general manager of DuPont Engineering Polymers. Other tire manufacturers are looking to integrate vertically by buying the sources from where their raw materials originate. For example, Japan-based Bridgestone Corp. purchased an Indonesian rubber plantation last year and is assisting farmers in other parts of the world to plant more rubber trees. The company also has been investing in facilities that make strategic raw materials such as carbon black. While automakers and aftermarket manufacturers are also feeling the impact of rubber prices, it is the tire dealers who are in the direct line of fire. Escalating prices have impacted them for years. This year has been especially tough because it coincided with rapidly rising crude oil prices. For many, the effect has been a double-whammy - consumer spending has been squeezed, and like the auto repair business, discretionary spending on tires has taken a back seat to paying for gas and home heating. Dealers have been able to do little other than batten down the hatches and ride out this storm. Should the IRS forecasts hold true and rubber prices drop over 2007 and 2008, it will bring welcome relief. If domestic consumer spending ramps up, the news may be even better.
(Sources: RMA, IRSG,
The
Economist, idorfman.com)
