Just about everything in the world's rubber industry is interconnected. But you already knew that. Too much rain in Southeast Asia affects natural rubber tapping, and NR prices go up for that weatherstripping maker in the U.S. A big tire recall—the Explorer/Firestone SUV tires debacle is the best example—causes product liability lawyers to go on a rampage and bring suits against other manufacturers.
China overbuilds synthetic rubber capacity; here come the cheap exports to the U.S.
I could go on.
What is happening in Ukraine is another good—and by good, I mean really awful—example of the smallish world in which the rubber business operates.
Russia's land grab of Crimea resulted in some sanctions by the U.S. and Europe. The shooting down of a Malaysia Airlines plane threatens to make the situation a lot worse.
At this stage, the ramifications of downing a commercial airline over Russian separatist-held territory are unclear. The enactment of much tougher economic sanctions against Russia, depending upon what the evidence shows, would be the likely scenario. Followed by retaliation by Russia.
That has the potential to cause grief for a number of rubber industry companies that have been doing business in Russia, the “R” in the high-flying BRIC countries. Examples abound.
ContiTech A.G., for one, recently opened a $23 million automotive hose plant in Kaluga, Russia. A few months ago, Pirelli began negotiations with a Russian company about building a synthetic rubber facility in Russia.
Many other companies, on both the rubber manufacturing and supply side, are involved in that growth market. A good friend of mine works at one, a very globally oriented, U.S.-based business that has a big footprint in Russia. The company's products aren't run-of-the-mill widgets, either, and I wonder if he's losing sleep over the possibility they may be a target for sanctions. That would hurt, big time.
It goes both ways, too. In Omsk, Russia, a huge carbon black facility opened recently, with Europe as the target for the material. But perhaps not if an all-out trade war ensues.
I imagine—and hope—the chances of such a major economic conflict aren't that likely. Europe, which depends on Russian oil and gas, really could be hurt by retaliatory action. Economic trouble in Europe, or Russia for that matter, can cause trouble for the fragile recovery in the U.S. and just about everywhere else.
Because we're all interconnected, for better or for worse.
Noga is a contributing editor for RPN and its former editor. He can be reached at [email protected]