Rubber is a unique, strategic and not replaceable material used in aerospace to agriculture and in a wider day-to-day daily life applications. Rubber as an elastomer, originate from natural and synthetic sources and variability in their technical performance is a key element in their end-user applications. Of the total rubber consumed globally, 54% of its usage accounts for synthetic rubber and remaining 46% for natural rubber (IRSG, 2017). The automotive and tyre sector is driving the rubber demand globally and the General Rubber Goods sector has wider coverage of health care, construction, water proofing, dipped goods, belt/hoses and others. Rubber industry is strategically linked to all key industries and therefore influenced by their performance and performance of the economies of their trading partners.  Robust investment growth in emerging economies in the early to mid-2000’s prior to the global financial crisis encouraged new capacity, capacity expansion in rubber production and supported manufacturing capacity expansion as well as capacity shift towards locations close to the raw material production.

Market Trends   

 Asia-Pacific accounted more than 50% of the global rubber capacity (both natural and synthetic rubber) and rubber demand in this region is driven by robust growth in China, India and ASEAN region (IRSG, 2017). 

Source: IRSG, 2017

Growth in tyre sector, primarily driven by infrastructure investment growth in Asia, is expected to drive the global rubber demand while mature markets, the Europe and Americas, are expecting a recovery from the economic slowdown.  According to IMF’s latest outlook world economy is expected grow at an accelerated rate of 3.5% in 2017 over 2016 (IMF, April 2017).  China will remain as a key source of growth and the concern since its economic transition towards a market oriented economy continues and its failure to meet the growth expectation after its rebalancing can have serious setback in the region and globally. 

Developments in Rubber Production

Boosted by expansionary monetary policies worldwide and growing tyre demand in emerging markets, investment in natural and synthetic rubber industry has expanded strongly after the global financial crisis. Production capacity and production rose rapidly in the last decade, particularly in the Asia-Pacific region. Natural rubber is primarily harvested from the rubber tree ‘Hevea brasiliensis’, although native to the Amazon region, over 90% of natural rubber is now produced in Southeast Asia. With an estimated 12 million hectares of rubber plantation area, that is capable of meeting demand requirements, is subject to different levels of risk mitigation on account of climate, labour, productivity and price and these factors are the key determinants of actual production of NR. Thailand, Indonesia and Vietnam are the first three major NR producers representing around 70% of global capacity and production (IRSG, 2017). Rapid area expansion under NR happened in the mid- 2000s was driven by Thailand, Mekong countries and Ivory Coast.  The investments in new area in these countries have already reached mature yielding phase of production cycle.   Production capacity of NR increased rapidly in the last decade, particularly in the Asia-Pacific region. However, volatility in market prices in the last four years has influenced producers’ decision on harvesting and actual production growth was lower than capable production during this time period.  

The trend in production capacity and production of SR was not different from that of NR, the focus of growth remains the same, Asia-Pacific and China. The top five producing countries/regions were China, EU-28, USA, Japan and Russia, with the first three representing 66.4% of the global SR production (IRSG, 2017). The production capacity in China and other Asian countries such as Thailand and Korea have almost doubled since 2010.  However, operating rate was much lower than actual capacity in Asia, driven by demand driven factors, regulatory and environmental factors as well price trends of both SR and butadiene that have influenced the actual SR production.  Optimization, consolidation and the market pressure has contributed to the slowdown in production growth globally while the Chinese market has experienced a transition towards a market balance with capacities continuing to be kept idle. 

Source: IRSG, 2017

China’s SR production grew at a compound annual growth rate of 4.5% during 2010-16 period and volume of production expanded from 2,284 KMT in 2010 to 2,982 KMT in 2016 (excluding SBCs) whist production growth in mature markets were more or less flat in the post crisis period.  On the other hand, investment in the traditional producing countries has been limited due to weaker domestic demand and lower profit margin. This shift in production capacity is likely to continue in the near future.

Developments in Rubber Consumption

The tyre industry is the largest consumer of both natural and synthetic rubber. Investments in infrastructure development in the emerging markets coupled with increasing affluence in Asia’s rising population attracted automotive industries opening new capacities and expanding the existing capacities in Asia. Owing to superior technical performance of NR over SR, the former has its own domineering position in its end user application in heavy vehicle tyres. Strong growth in global NR consumptions during 2010-14 period (at 6% average annual rate) was primarily driven by the robust growth in China. A rebalancing of Chinese consumption growth was seen in 2015 and further acceleration in 2016 was supported by an increase in tyre production/sales owing to domestic as well as export market (IRSG, 2017). 

Source: IRSG, 2017

Beyond China, tyre demand growth in India and ASEAN countries supported the observed strong growth in Asia.  As synthetic rubber is predominantly used by passenger car tyre sector, the tremendous growth in China’s passenger car market has become the driving force for the development in the regional SR industry. The top five consuming countries/regions at the end of 2016 were China, EU-28, USA, Japan and Russia. China, EU and USA represent 29.5%, 16.4% and 12.8% of the global SR demand respectively (IRSG, 2017). 

Source: IRSG, 2017

Rubber Industry: What in for Formidable Growth

Rubber industry has challenges and drivers that have significant influence on its formidable growth and performance going forward. Some these can be transient and some can be long-lasting. Discussions of a revolution in transportation industry and a rapid increase in Eclectic Vehicles, industry commitments will be then focussed on improving environmental performance and technology advancement to cater those requirements. Commitments toward sustainable mobility and with the rising awareness on sustainable rubber usage, the passenger car tyre industry is moving towards better grip performance and lower rolling resistance, which likely increase demand for speciality synthetic elastomers. On the other hand, natural elastomer have to adhere to quality and consistency to meet performance requirements. Assuring to meet these requirements keeping sustainable supply of this natural elastomer can be a real challenge if prevailing market price cannot ensure a sustainable income for growers. Cooperation and collaboration of rubber value chain market players and rubber organisations and a willingness for dialogue is immensely important for market transparency. The opportunity for such dialogue in the rubber industry via International Rubber Study Group (IRSG) platform will be certainly helpful to resolve current impasse between producers and consumers, which will further the long-term growth of the global rubber industry for the benefit of producers and end users of both natural and synthetic elastomer.

References

IRSG, 2017. Rubber Statistical Bulletin, Vol. 71, No 7-9, Jan-March.

IMF, 2017. World Economic Outlook, April.