Natural rubber expert and editor of The Rubber Economist, Prachaya Jumpasut looks into supply of NR in the long term as urbanization and development in rubber producing countries impact opportunity costs. This article originally was published in the September issue of The Rubber Economist.
Natural rubber surplus returned to the picture again last year, making it a constant major threat amid growing global production capacity.
The sharp increase in the NR acreage has no doubt contributed to the increase in global rubber production, surplus and stocks over recent years.
With increasing production capacity, how can a long-term rubber shortage ever be possible?
Briefly, on the demand side, as income and population both continue to grow in Asia, more tire and general rubber products will be consumed, giving opportunities for end use industries to expand. The rapid growth in Asia is more than balancing out the saturation effect on rubber consumption in North America and Europe, resulting in a continued growth in world rubber demand.
On the supply side, increasing opportunity costs in major producing countries will influence a decline in NR supply.
Even rubber prices will likely return to $6 per kilogram as in early 2011, and/or rubber acreage will continue to expand like what happened over the past 10 years. Despite prospects for a continued increase in output from new and smaller producing countries, there is no guarantee that there will be sufficient NR in coming years.
The decision to plant or to tap rubber trees depends not only on current prices, but on alternative incomes and alternative costs. The land, capital and labor that go into producing rubber means the opportunities to build a factory or industrial complex are lost.
In the early stages of economic development, in a rubber producing country, the opportunity cost of rubber production is quite low. There are few opportunities apart from producing rubber and other commodities and wages in the city are not high enough to attract tappers away from the plantations.
As the country becomes increasingly industrialized, wages in the city increase, attracting workers and making land and capital relatively expensive to produce rubber.
It is inevitable that all producing countries, at one time or another, will reach the point at which the opportunity cost will be higher to continue to produce rubber. This time will come sooner or later.
NR is unique because many major producing countries are amongst the world's fastest growing economies. That is why Malaysia rubber output declined from 1.7 million metric tons in the late 1980s to just over 700,000 ton last year. Soon Thailand, Indonesia and Vietnam will follow the same path.
So as demand continues to increase while supply declines, the NR industry may eventually face shortages.
This likely may lead to increases in the use of alternative materials such as synthetic rubber, guayule and dandelions. There has been news of developments of NR from the latter two materials and trials being carried out by a number of tire manufacturers.
However, to us, it is not certain whether these materials can be a viable source for NR.
The most important question is whether dandelions or guayule can be produced on a large scale and as cheap as rubber? Many people believe that this is unlikely.
The government of Canada, which holds the rotating G7 presidency this year, plans to push the plastics charter in other forums.
Environment and Climate Change Minister Catherine McKenna told Canadian journalists she plans to bring the charter to both the United Nations and the G20 economic bloc.
At the summit, she suggested she's building links with businesses. She told a public session on plastics that she's had "wide-ranging conversations" with Polman and argued that there's significant economic opportunity in finding solutions to plastic waste problems.
"We do need business leaders who are going to step up, who are going to bring folks together, who are going to overcome sometimes old school mentalities that you can't tackle these problems or there isn't a huge economic opportunity moving forward," McKenna said.
Plastics industry groups were also in Halifax. Keith Christman, director of plastics markets for the American Chemistry Council, told the summit that the U.S. industry has committed to having all plastics packaging reused, recyclable or recoverable by 2040.
A trio of polystyrene companies unveiled a depolymerization technology at the summit they said can significantly boost PS recycling, and Nova Chemicals repeated a $2 million commitment to help fund plastic waste cleanup in Indonesia.
Attendees noted the positive roles of plastics in society. Erik Solheim, head of the U.N. Environment Program—which declared "war" on ocean plastics last year—said plastics in automobiles reduce fuel consumption and plastic packaging can reduce food waste.
"Those are good purposes," he said, "but it goes without saying that we can be a lot more innovative."
Solheim called for much better use of plastics, including phasing out applications such as straws or plastic bags that are only used for a very short time but can remain in the environment for many years, and urged companies to pursue better design.
Polman believes public concern will continue to grow, and he made a veiled criticism of the two G7 governments that did not sign the plastics charter, Japan and the United States, without naming them.
"Even though I realize there are some countries here still hesitating to sign I can only tell you, you are out of line with where the consumers are and you're out of line with where the bulk of the industry is," Polman said.