AKRON (Oct. 12, 2012)—A cartel of the world's three largest natural rubber-producing nations has begun an attempt to influence prices. If history is the yardstick for future success in their effort, good luck on that.
NR prices tumbled 15 percent in the first half of 2012. Why that has happened depends on who is talking. The International Rubber Consortium—made up of Thailand, Indonesia and Malaysia—said it primarily was the result of “negative market sentiment” caused by uncertainties in global economic growth.
The IRC said demand for the critical material remained strong, and inventories are low.
There's truth in that, particularly the worries about soft world economic conditions. The Eurozone has been struggling to fend off debt-inspired disaster that could drag the entire world back into recession, or worse.
China, the growth-engine of the globe, continues to outpace most economies. However, its official rate of growth has slowed, and some economists believe even those numbers are inflated.
One reality is, though, that tire demand has slowed. Tires are the primary destination for NR, and if consumption is down, prices naturally will fall. In recent weeks reports of tire production adjustments by Goodyear at two plants might signal similar action by its competitors.
Historically, NR prices and supply were controlled for years by a mostly successful commodity pact, the International Natural Rubber Agreement. The International Natural Rubber Organization, made up of nations on both the supply and rubber product manufacturing side of the equation, took NR off the market and stored it to boost prices, and sold the stockpile to reduce prices, as needed.
The manufacturing nations—such as the U.S. and those in Europe—were in the pact to encourage a steady supply of NR. Still, it was as much a political agreement as a business arrangement, an effort by the West to help mostly Southeast Asian nations improve the lot of their people.
Ultimately INRA expired. “Let the market decide” is the mantra of capitalism today, and such supply-demand agreements are a thing of the past.
The IRC nations are intent on helping their citizens who produce NR—most of them smallholders, not rich conglomerates. They'd like to emulate OPEC's past success in manipulating prices by cutting NR exports and production.
But even OPEC bows to market conditions. And Hevea rubber? As important as it is, it isn't oil.