Producers of natural rubber used mostly in tires are creating a global surplus for the fourth straight year, leaving prices mired in a bear market that is the worst of any major commodity.
Farmers will expand output faster in 2014 than the gain in demand from surging car sales, creating the biggest glut in at least a decade, the International Rubber Study Group said May 2 in an estimate that was triple its forecast in December. Futures in Tokyo, down 62 percent from a record in 2011 after touching a four-year low last month, may drop 12 percent further to 180 yen a kilogram ($1,759 a metric ton) this year, a survey of 13 analysts by Bloomberg News showed.
Lower prices in the $26 billion rubber market are providing an earnings jolt for tire makers including Pirelli & C. SpA and Bridgestone Corp. and squeezing profit for small farmers who tap rubber-tree bark and account for about 80 percent of supply. While top producer Thailand is taking steps to curb output as it has during previous slumps, lower-cost growers including Vietnam and Indonesia are still profitable and show no signs of cutting back.
“I have a family to feed,” said Indonesian farmer Lukman Zakaria, 64, who owns 500 acres on the island of Sumatra that produce about 1.2 tons of latex per hectare annually. Zakaria said he can't afford to reduce production, even with lower prices.