The demand-supply gap of natural rubber is predicted to significantly widen in the course of the current decade and likely to end up in a shortage of as much as one
million tonnes by 2020, according to certain authentic estimates. If this happens, it is
going to be one of the toughest challenges for all the stakeholders of the global rubber industry. Since doing away with rubber is out of question, the crucial issue is how the industry will tackle this impending crisis and what will be its consequences?

The rubber industry is in for bad times! The good old natural rubber, the ‘wonder milk’ from Hevea brasiliensis, is in for severe supply crunch by the end of the current decade, much to the worry of the global rubber industry. The rubber consuming industry, especially the tyre industry, which cannot even imagine of doing away with this vital raw material, is the most worried lot.

Alarming enough, global warming and the consequent climate change are also playing spoil sport with NR production. It is against this backdrop, the ongoing research initiatives aimed at reducing the NR content in tyres and other rubber goods, developing alternative sources of NR by the industry and enhancing production by developing climate-tolerant and high-yielding clones, expanding rubber cultivation into non-traditional areas and other initiatives by the grower community are to be assessed.

It is of paramount importance that the NR growing community maintains regular supply at fair prices so as to prevent the manufacturing community resorting to the extreme step of switching over to alternatives and substitutes in the long run. Escape route, either by developing new technologies for reducing the NR content in their products or by switching over to alternative sources of NR, is certain to become the manufacturing industry’s priority. Both these options can spell bad times for the NR growers for whom its party time now, thanks to the higher prices

One million tonnes shortage

Many rubber industry organisations including the International Rubber Study Group (IRSG) have predicted that NR shortage by the year 2020 will be nothing less than one million tonnes. The Association of Natural Rubber Producing Countries (ANRPC) also says global supply of natural rubber will remain “tight” at least during the next seven years as output from major NR producing countries will fail to match the rising demand from the manufacturing industry, mainly tyre and glove makers.

Added to this is the likely adverse impact of climate change on rubber production in major rubber growing regions of the world. While unprecedented rise in atmospheric temperature is affecting normal production in countries like India, the fourth largest producer of NR, the recent unusual rains and floods in Thailand, the world’s top producer of NR, and in other countries like Indonesia and Cambodia are certain to have their tell-tale impact on global NR supply.

Most of the natural rubber is produced in the South and Southeast Asia which are highly vulnerable to climate change, says Dr James Jacob, Director, the Rubber Research Institute of India (RRII) and Vice Chairman of the Task Force of the International Rubber Research and Development Board (IRRDB). “The climate changes that took place in major natural rubber growing countries of late have largely come to stay and this may further increase the “supply side instability of natural rubber,” he adds.

NR dominance under threat

There is no denying the fact that the latest trends and available statistics point towards a continuing tight market throughout the current decade. While this may make NR dearer to the advantage of the growers at least for the time being, the high prices and short supply are likely not only to cut into margins of the manufacturing industry but also push them to the edge of finding substitutes and reducing NR content in products.

The situation may turn out critical, almost similar to what had happened during World War II when severe NR crunch led to the commercial development of synthetic rubber (SR), thus breaking the monopoly of NR, says a tyre industry observer.

Hence it will not be surprising if the current trends lead to the development of innovative technologies that can reduce the usage of NR, promotion of commercial production of other natural alternatives of NR and the manufacturers’ direct entry into NR cultivation and SR production in a big way. Also on the cards are the development and commercial usage of bio-feedstocks for the production of SR.

During the second half of the 1990s and the first few years of the current century, new planting became less attractive due, among others, to the Asian crisis and the downward trend in prices. Land was even taken away from rubber. This led to the stagnating supply potential for NR.

Scary statistics

Available statistics are eye-opening enough. According to the projected scenarios conceived by Jom Jacob, Senior Economist, ANRPC if prices stay favourable keeping farmers enthusiastic, total NR production would be 13.53 million tonnes in 2018 at a replanting rate of 3%, 12.7 million tonnes at a replanting rate of 4%, 14.34
million tonnes at a replanting rate of 2%
and 12.04 million tonnes at a replanting rate of 5%.

Meanwhile, IRSG estimates that by the year 2020, global rubber consumption will touch 35. 9 million tonnes with NR accounting for 16.5 million tonnes and SR 19.3 million tonnes. According to Dr Stephen V Evans, Secretary General, IRSG, as against the projected global NR
consumption of 16.5 million tonnes by 2020, the global NR production will be lower at 15.2 million tonnes, indicative
of a deficit of 1.3 million tonnes.

Latest developments

The latest developments that have a bearing on NR supply and consumption include the devastating rains and floods in Thailand and other Southeast Asian countries.

However, any of the upward projections on NR supply would be impacted by the effects of climate change and change in the land use pattern, says Abdul Aziz, Secretary General, IRRDB, adding that the erratic behaviour of climate has pushed the grower community in the traditional areas into an era of uncertainty.

Meanwhile, NR market has not been immune to the bearish trend in markets the world over caused by the clouds of yet another global economic slowdown. China’s third-quarter GDP slowed down to 9.1% from 9.5% in the second-quarter “The NR market may continue to lack momentum as long as the global economy keeps the current slow pace,” says Dato’ Dr.Kamarul Baharain Basir, Secretary General, ANRPC.

The debt crisis in the European Union (EU) and the lingering economic crisis in the US are also likely to slow down rubber demand, mainly from the tyre industry which consumes the major chunk of global NR production.

According to market economic analysts, Europe is already in the grip of a mild recession and the US is likely to join the former soon, but the global economic turmoil is unlikely to reach the depths of the 2008 downturn.

In fact, the falling demand for tyres, caused by the debt crisis in Europe and economic woes of the US, has forced tyre companies to slash production by up to 15% of late.

Challenge is different for growers

The challenge before the NR growers in this scenario is quite different and harsh. There is a tendency among the grower community to stick on to rubber as long as it fetches better prices. They also overexploit the existing trees without caring for replanting and new planting. Once the price crashes, they switch over to other crops or even desert the plantations.

This is virtually suicidal as precipitating shortage will only spell the doom for NR as the industry will be forced to seek alternatives and substitutes. Hence it is of paramount importance that the growers maintained regular supply of NR at fair prices so that the manufacturing sector would not be pushed to the limit of resorting to alternatives and substitutes.

There is no denying the fact that high productivity must get top priority. Equally important is the need to increase total production through area expansion. It is heartening to note that research organisations like the Rubber Research Institute of India (RRII) are now focussing more on location-specific ‘smart’ clones.

P K Mohammed, Chief Advisor, Research and Technology, Apollo Tyres Ltd., says that a rise in productivity in the millions of hectares now under NR can wipe out the shortage. Admits Dato’ Dr.Kamarul Baharain Basir “an output of 3,750 kg per hectare is possible. But 90% growers are small holders and they don’t have now high yielding clones and their agricultural practices are not conducive for higher productivity”

“This is all the more relevant when we expand rubber to newer areas in countries like India so as to bridge the gap between demand and supply of NR,” says renowned agriculture scientist, Prof. M S Swaminathan. Experts like Prof Swaminathan also advocates improved mechanisation and reduced tapping frequency to minimise labour
dependence in the natural rubber sector.

Over-exploitation

In this context, it may also be noted that growers in most of the major NR producing countries have already exploited all options available to them for increasing output from existing trees mainly because of the high prices. The possibility of further increasing output from the existing trees is therefore limited. Moreover, as experts point out, continued high price need not encourage farmers as wide profit margin is unsustainable in any industry having a competitive market structure.

Another factor affecting production is the rising wages and cost of other inputs. There are many who feel that prices will continue to rule high as costs of operations are high with the increasing cost of planting materials, fertilizers, tapping charges, financing and transportation charges, says a Chinese plantation scientist. On account of all these, growers’ profit margin is on the decline, despite high prices.

Despite conflicting interests, both producers and consumers want price stability. Comments Peter Cane, Managing Director, Goodyear Orient Company (Pvt) Ltd: “Both sections are on the same side when it comes to stable price. It’s good that Thailand is planning to encourage replanting when there is a surplus. ANRPC should encourage such moves to ensure enough, regular supplies”

Li Weiguo, Director General of State Farms & Land Reclamation Bureau, P.R. China, says: “The economic and social benefits of NR for people are manifold. Apart from generating jobs for millions of farmers, it increases forest coverage and reduces soil erosion”  The Chinese story is remarkable when you consider the fact that China developed almost a million hectares of NR overcoming typhoons, low temperature and floods. What China needs today are wind, drought and low temperature tolerant breeds.

Ms Mary Xu, Deputy Secretary General, China Rubber Industry Association, is optimistic about rubber consumption and prices. Says Mary: “Chinese demand will continue to grow. When China loosens its monetary curbs, prices will go up. But the need of the times is keeping NR prices stable for tyre companies’ growth.

Reducing NR usage

According to a recent report, Bridgestone is working on a technology that would radically reduce the amount of natural and synthetic rubber used in each tyre it produces, of course, without any impact on quality or performance. The tyre-maker hopes to have the technology (which also encompasses other tyre components) in place within ten years. This will effectively cut its total rubber consumption by 50%. Reducing input costs is a major priority of the tyre manufacturers in the backdrop of fast rising oil and NR costs.

In a recent interview, Bridgestone’s Masayuki Ishii, General Manager of Corporate Communications, revealed the company’s raw material plan, saying Bridgestone aims to “reduce the amount of all tyre materials, including natural and synthetic rubber,
incrementally over ten years without cutting performance.”

Gunter Lottman, General Manager, Industrial Unit, Grupo Agro Industrial Occidente, Guatemala,  says that his interaction with tyre companies give the feeling that they have made good progress in their attempts to reduce NR consumption. The anticipated shortage of NR will definitely force them to find alternatives and devise processes for reduced NR usage. “But the eco-friendly nature of NR and the benefits of green plantations will definitely make NR irreplaceabl” he adds.

Bio-feedstocks for SR

Renewable bio-feedstocks for the production of synthetic rubber are fast becoming popular in the industry in the wake of high prices and uncertain supplies of both petroleum feedstocks and natural rubber, according to reports.

Both small and big companies, including Goodyear and DuPont, are going ahead with plans to develop and commercialise bio-based butadiene and isoprene. Michelin is reported to have tied up with a technology company for manufacturing renewable isoprene on a commercial scale.

Isoprene feedstocks can be produced from either petroleum cracking or chemical synthesis. As these two processes are related to oil prices, resorting to bio-feedstocks to produce isoprene has become a major priority.

Plantation forays by tyre majors

Of late, more and more tyre companies are venturing into setting up own rubber plantations in order to ensure continuous supply. International tyre majors like Michelin, Goodyear and Bridgestone are the pioneers in this field. The Indian tyre major Apollo has already acquired land in Laos while MRF is also scouting for areas to set up own plantations.

However, there are several risks involved, point out experts. One is the political instability of the regions. Another is the volatile climatic and agronomic conditions of these areas.

One thing is clear. The manufacturing industry is slowly waking up to the reality that a major NR crunch is imminent. This new awakening may lead to revolutionary changes in the industrial use of natural rubber. Only time can prove how it would impact the NR growing community for whom it’s party time now.