Analyst: Natural rubber supply in danger long term

CUYAHOGA FALLS, Ohio—When it comes to the supply of natural rubber, Bill Hyde is more concerned about five years down the road than five months from now.

That's because while there is current disarray in the market and difficulty in obtaining materials, those issues are caused more by logistics than actual supply and demand issues, according to the IHS Markit executive director of C4 olefins, natural and synthetic rubber, and tire raw materials.

Hyde said it never ceases to amaze how much the natural rubber industry is built on the backs of NR tappers who go out every day, tap the trees and send the material to processing plants.

"The world's NR industry—for today and at least for the foreseeable future—is really dependent on small farmers working small fields, an average of 1.5 hectares," he said in a virtual presentation during the recent Rubber in Automotive Conference, organized by Rubber & Plastics News.

That method of filling the natural rubber pipeline was prevalent throughout Southeast Asia, at least until COVID-19 hit, and all of the sudden there wasn't enough labor to tap the trees. But that wasn't a big deal in 2020 as NR demand fell, China bought a lot of surplus rubber and there were strong inventories available.

But when markets rebounded, there wasn't enough NR in place to meet immediate demand. Hyde said the huge disconnect in containerized shipping wreaked havoc, with empty containers where they weren't needed, none available where they were needed and huge backlogs at ports.

Prices went through the roof, delivery times lengthened, and it was difficult to get the natural rubber from where it was produced in Southeast Asia to where it was consumed in Northeast Asia, Western Europe and North America.

But Hyde sees these problems as temporary, unlike the long-term prospects for NR.

"In our view, current issues around NR are more focused on logistics than they are on actual supply/demand," Hyde said. "We think there is enough NR capacity and production to meet demand.

"The spread between the price of NR in Southeast Asia and Western Europe or North America is at an historically high level today, and that's all logistics," he said. "It will work its way through. It will take awhile, but hopefully (be back in line) in six to eight months."

Hyde, however, is worried about what will be in place over the next five to eight years, because actions taken today will have consequences years from now. "That's where there's more worry because there's been a strong signal over the last several years not to replant natural rubber, not to expand capacity," he said.

If those trees aren't planted now, then six years into the future (when they should be producing rubber), the likelihood of shortages will increase.

"You can't pay trees overtime (to produce more)," Hyde said. "There is a hard and fast gap between planting and production. That's where we're a little more worried about, there hasn't been sufficient planting to meet the future demand growth."

A number of countries are putting NR on strategic raw material lists, which he said opens up the possibility for government funding for research and development into alternative forms of NR. Research has been going on for years in such areas of guayule and dandelions, but it remains a long way from being able to replace the NR that is consumed currently.

"Most of the tire companies have been doing research in one or more of these production groups," Hyde said. "There is something out there that could step in, but will it be commercialized enough within the five-year window? That's really a tough thing to look at."