A “perfect storm” of circumstances—including floods in Thailand, a weaker U.S. dollar and higher commodity prices in general—have caused natural rubber prices to leap to unprecedented levels.
Furthermore, because of the long-term nature of the causes, NR prices almost certainly will continue to increase in the foreseeable future, according to various sources.
“Things have just come off the hinges,” said one industry source who asked to remain anonymous.
The figures, he said, speak for themselves. Standard Indonesian Rubber 20—the grade of NR most often used by U.S. tire manufacturers—stood at $1.82 per pound F.O.B. (at the port of origin) Nov. 3, $1.87 Nov. 4, and $1.91 Nov. 5.
“Every day it's not an increase of one-quarter or one-half cent, but five cents,” the source said. “It's extremely drastic.”
NR supplies already have been tight throughout most of 2010, but they are worsening in the current quarter, according to the Association of Natural Rubber Producing Countries in the October issue of its monthly publication, Natural Rubber Trends & Statistics.
“The concerns over supply seem to have prompted Chinese buyers to procure large volumes of NR during October,” the ANRPC said.
NR demand from China is expected to rise 41.5 percent during the quarter, it said.
Most ANRPC member nations have downgraded their projected rubber production for 2010, the association said. Unexpected heavy rains in Malaysia, India, China and especially Thailand prevented tappers from working during much of October.
Meanwhile, the fall of the U.S. dollar against the Thai baht, Malaysian ringgit, Indonesian rupiah and other world currencies was precipitous between July and October, a function largely of the Federal Reserve's efforts to stimulate the U.S. economy by purchasing hundreds of billions of dollars worth of longer-term Treasury securities.
“I hate to use a cliche, but it really has been a perfect storm for producers,” the source said. “During the course of a normal year, there are at least a couple of times when supply will catch up with demand. This year, there has been not one opportunity for this. First there were floods, then an early Ramadan, then more floods.”
The bad news hasn't yet sunk in with NR consumers, he said. “They get used to hearing the same thing over and over, but it's a very real situation and a dangerous one for producers and consumers alike.”
The recent volcano eruptions in Indonesia have had little or no effect on Indonesian rubber producers, according to the source. The main disruption on supply has been the floods in Thailand, he said.