As tyre makers expressed concern over high prices of raw materials and announced they would hike tyre prices, top Asian rubber-producing nations were said to be in favour of reviewing production-cutting measures to stabilise prices.

The IRCo, or International Rubber Consortium, comprising rubber industry officials, exporters and government agricultural officials from the top three producing countries of Thailand, Indonesia and Malaysia, is expected to revise or even cancel the production cutting measure implemented since the start of 2009 in a bid to support falling prices, Reuters reported.

Any decision made by the IRCo would have to be ratified by the International Tripartite Rubber Corporation (ITRC), which brings together senior government officials from the IRCo countries.

Physical rubber prices fell as low as $1.15 per kg in December 2008, forcing the top three producing countries to issue a measure to cut an overall 915,000 tonnes of rubber output from the market starting from 2009 to prop up prices.

According to the plan, the three governments used soft loans to encourage farmers to cut down aging rubber trees and replant.

Rubber trees usually take at least five years to mature and start producing latex. The cancellation of the measure would result in rising supply and should help weaken prices, traders said.

Rubber prices rebounded gradually in 2009 and finally surged to a record high of $4.10 per kg in April, due largely to rising demand amid a recovering world economy and tight supply in producing countries during the dry season that cut latex output.

The benchmark Thai RSS3 price was quoted at $3.45 per kg in mid-May.

‘Appropriate’ levels reached

“I think prices have risen to appropriate levels and the market doesn’t need the measure any more,” said a trader at Thailand’s Hat Yai rubber centre.

Rising oil prices brought distress to tyre makets.

French tyre maker Michelin said it would hike prices to offset higher raw material costs in 2010 and warned that rubber markets could remain volatile with high prices for coming years.

Noting that world rubber prices had risen throughout 2009, and surged in the early months of 2010 because of a shortage of supply, Jean-Dominique Senard, one of the Michelin group’s three managing partners, said: “This violent increase is a challenge for the group; it’s a real issue for 2010.”

“We are going to ensure that sale prices reflect this rise in costs we are experiencing,” Senard said.

His comments echo Italian rival Pirelli & C SpA, another major European tyre producer, which said earlier it was considering raising tyre prices further to offset raw material costs, including the cost of natural rubber.

Michelin suffered a 10 per cent drop in sales last year during the economic downturn. Like Japanese competitor Bridgestone Corp it is highly dependent on the price of natural rubber and oil.

China had slowed down purchases of natural rubber because of high prices. Chinese synthetic rubber imports jumped to a record 182,570 tonnes in March. Natural rubber inventories monitored by the Shanghai Futures Exchange were said to have plunged 68 per cent since reaching a five-year high in January.
Synthetic rubber prices depend on crude oil.

As car sales in China rise, global tyre production is expected to grow by 3 per cent to 5 per cent a year. Rubber consumption in China is expected to grow 10 per cent from last year’s 3.35 million tonnes, according to a report issued by the Association of Natural Rubber Producing Countries.

Researchers’ findings

Meanwhile, researchers at The Freedonia Group  said recently that world demand for industrial rubber products was expected to reach $97.8 billion, climbing at a rate of 4.3 per cent annually through 2013.

In developing regions, market advances in industrial rubber products will be primarily driven by ongoing industrialisation efforts, rising personal income levels, and strong economic growth, they said. These factors, in turn, will bolster manufacturing output and fixed investment expenditures. The largest share of aggregate industrial rubber product demand in 2013 will be found in the industrial equipment market, which includes industrial machinery and equipment as well as off-road vehicles.

China will become the largest national market for industrial rubber products.

One-third of total additional demand for industrial rubber products generated through 2013 will be attributed to China. According to The Freedonia Group, China will surpass the US to become the largest national market for industrial rubber products. India will also post robust gains and healthy sales growth in the industrial rubber products market. Meanwhile, Eastern Europe will continue to maintain solid advances in the industrial rubber industry.

US demand for industrial rubber products is expected to recover by 2013. Industrial rubber product demand is set for recovery by 2013 despite some slumping in the shorter term. A turnaround in motor vehicle production and a recovering manufacturing sector will generate advances in industrial rubber product demand for the US.