Rubber Economist issues new forecast

ERJ staff report (DS)

London -- The Rubber Economist Ltd expects total world rubber consumption may not hit bottom until the end of 2009. Thus the decline this year, which is forecast at -9.6%, will be even worse than 2008 and the worst since 1942.

Rubber forecasts have been becoming steadily ,morepessimistic since the second half of 2008. A fall off in 2009 is expected for most countries. However, the sharp decline globally depends significantly on the performance of China, which is expected to show a recovery in the second half of 2009, to show positive growth by the end of the year.

However, positive growth rates in world rubber consumption of 8.8% and 5.1% are expected for 2010 and 2011, respectively. Despite a return of a sharp growth rate, the average annual growth rate for 2009-2011 will only reach 1.0% and much of the growth will mainly be in Asia/Pacific. This means rubber consumption may only rise to 22.97 million tonnes in 2011, which is lower than that of 23.04 million tonnes in 2007.

Consumption of natural rubber (NR) is expected to show a sharper increase than for synthetic rubber (SR), i.e. an annual growth rate of 1.1% and 0.9%, respectively. The relatively lower price of NR when compared with SR helped to increase NR shares last year and is expected to do so again this year before the trend reverses in 2010 and 2011. Hence the world percentage of SR is forecast to decline only marginally to 56.2% by 2011 as compared to 56.3% in 2008. The increasing SR shares in Europe will balance out the decline in North America leaving the world share relatively stable.

Despite a slowdown in demand, NR output is expected to continue to increase by an average of 1.1% over the next three year period. The growth rate, particularly in major producing countries, may be a lot lower than during recent years; however the relatively fast increase in production in Indonesia means it will move to a closer position to overtake Thailand as the number one producing country. The continued increase in production in India will also mean it may overtake Malaysia to become the third largest NR producer by 2011. Despite weaker prices than the first half of 2008, many smaller producing countries may find the price levels profitable enough with their lower cost of production. The steady rise in rubber prices since 2002 has resulted in an increase in new planting during this period in many smaller producing countries, which have lower price elasticity than the major producing countries.

Unlike NR, many SR consumers are also producers, allowing them some flexibility. Hence, SR output is forecast to show a marginal decline by only -0.2%/year. Furthermore, there may be an increase of SR output in Asia in relation to other regions. The continued increase in rubber output in China means it may overtake Thailand as the largest rubber, NR plus SR, supplier.

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