There's a new source of trepidation in natural rubber trading-a business which has known more than its share of turmoil. That source is the rapid growth of NR futures trading in the Far East. An entity that barely existed in the late 1980s, the Tokyo futures market alone now boasts monthly NR transactions representing as much rubber as the world produces in a year.
Some sources fear such an active futures market, fueled by speculation and rumors, could distort severely the way rubber prices are set, divorcing the practice from the traditional supply-and-demand forces that determine pricing.
This is a legitimate fear. But fear also was legitimate in the case of several other factors which have buffeted, and sometimes damaged, the NR trade. The trade always has survived, for little is constant in NR except change.
Increased direct buying of NR by rubber product manufacturers was nearly disastrous for the trade. During the 1980s, the number of active rubber dealers and brokers fell by almost two-thirds.
But the remaining trade has survived by stressing its advantages over direct buying-advantages such as longer forward buying periods and guarantees for the quality of shipments. With today's fluctuating prices, those advantages look better and better to manufacturers.
Similarly, the information age, bringing instant communication to everywhere in the world, destroyed the edge one NR trader could gain by learning the SIR 20 price in Singapore a few minutes before everyone else. But the participants in the trading business learned to live with computers.
As for the International Natural Rubber Agreement, the trade feared it would distort the free market by artificially propping up or lowering prices. No doubt it did.
But NR producers and consumers are happy, and the consensus among the industry at least is not unhappy.
Indeed, some traders are enthusiastic about the futures market.
The market offers a good hedging mechanism, better liquidity and a chance for the industry to obtain new customers.
The entire rubber industry has lived with rapid, rampant change for the past two decades-globalization, downsizing, the technological revolution. It is best to remember what Nietzsche said-that which does not kill us makes us stronger.
Moore is the Washington reporter for Rubber & Plastics News.