4. Agricultural raw materials

Natural rubber

Introduction

Natural rubber and the different types of synthetic rubbers are used in many different end-products. The most important is the tyre sector taking about half the total elastomer consumption. The other category, general rubber goods, includes hoses, belting, footwear, surgical goods, and rubberized cloth.

The 1990s witnessed several important changes in the global natural rubber economy. World consumption of natural rubber rose by about 32 percent, while that of synthetic rubber increased by only 4 percent and total elastomers by 14 percent. The major reason for this is the collapse of the Soviet Union, which consumed a massive amount of rubber, with less than 10 percent natural rubber. Also, there was a significant change in the relative share in the utilization of natural rubber between the developed and developing regions. Consumption of natural rubber in the developing countries rose by over 4 percent per annum against less than 2 percent in the developed countries. Consequently, the share of the developing countries in global consumption of natural rubber rose from 42 percent to 48 percent between the periods 1988-1990 and 1998-2000. On the other hand, requirements in the tyre industry led to a decline in the share of natural rubber in total rubber consumption in most Asian developing countries.

Most natural rubber production is traded internationally. However, the share of exports in production declined from 86 percent in the late 1970s to 80 percent in the late 1980s and to around 70 percent in the late 1990s. This decline was partly the result of increased domestic utilization by the exporting countries themselves, as well as rapid growth in production in some net importing countries such as China and India. World exports increased by over 1.6 percent per annum between 1988/90 and 1998/2000.

The decade also saw the demise of the International Natural Rubber Organization, another failed attempt to influence markets through managing stocks. The sharp decline in world market prices and fluctuations in exchange rates made the price support programme too expensive to continue.

Production

World natural rubber production was 6.8 million tonnes during 1998-2000. It is projected to reach 7.9 million tonnes in 2010. The annual growth rate would be 1.3 percent in the current decade, which is significantly below the 2.9 percent during the past decade.

Rubber is produced entirely in developing countries and Asia is the largest producing region. It is projected that total production in Asia would reach 6.8 million tonnes by 2010, more than 85 percent of world output, with an annual growth rate of 1 percent. Compared with the fast growth last decade of 2.7 percent, the slower growth is largely due to further contraction in Malaysia and Sri Lanka, which have made efforts to diversify to more remunerative crops. On the other hand, expansion would be less rapid in almost all other countries except Viet Nam. Compared to 2001, production in Thailand would even decline. There are a number of reasons for this. First, a large part of the area was planted in the 1980s and is now due for replanting and thus will to be out of production for around six years. Second, the rate of replanting natural rubber is declining as farmers and land shift to other employment because of the low prices seen in recent years. Finally, there is not much new planting. Nevertheless, Thailand is expected to retain its position as the world's largest supplier to produce 2.2 million tonnes by 2010. In Indonesia, production should grow by 2.2 percent annually to reach 2.05 million tonnes by 2010. While production in other major producing countries such as China and India experience little growth, Viet Nam and the Philippines are likely to see their production grow annually by 8.4 and 5.9 percent respectively, to double their output by 2010.

Africa is expected to continue to increase its production to nearly 0.5 million tonnes with an annual growth rate of 2.2 percent, which is slightly higher than 1.8 percent in the previous decade.

Latin America experienced more rapid expansion in production than other regions. In the past decade, it grew by 8 percent annually, but growth is expected to decline in the next decade to around 5 percent annually. Brazil is the largest producing country in Latin America. Favourable agronomic conditions, abundant land resources and lower labour costs are the major factors driving the growth in production. However, given the very low production base of only 31 000 tonnes in 1988-90, Brazil would still be a small producing county in global terms with output of 0.12 million tonnes by 2010.

Demand

Demand for natural rubber is part of the total elastomer demand for tyres and other rubber products. More than 60 percent of natural rubber is used for tyres, which is the major driving force behind changes in natural rubber demand. The share of natural rubber in the tyre sector was about 50 percent in 2000 and is likely remain around this level in the next decade. Technological requirements are the overwhelming determinant of the share of natural rubber in tyre production and no significant new developments are foreseen that would allow synthetic rubber to replace natural rubber in tyres.

However, in the general rubber goods (non-tyre) sector, the share of natural rubber is projected to decline from about 29 percent in 2000 to about 22 percent in 2010. This decline reflects partly a continuation of a shift to speciality rubbers and other materials, coupled with a projected shortage of natural rubber. Natural rubber can more easily be replaced in many non-tyre applications than in tyres.

Overall, natural rubber will constitute about 36 percent of total elastomer consumption by 2010 declining from 40 percent in 2000.

World demand for natural rubber in the year 2010 is projected at 7.9 million tonnes, a 1.3 percent annual increase in the current decade, considerably lower than in the 1990s. Demand is projected to grow fastest in the developing countries, at about 2.5 percent annually. Above average economic growth in developing countries as well as the increase in demand for domestic processing of rubber products would contribute to the higher growth in natural rubber demand.

Asia accounts for more than 86 percent of total developing countries’ demand, among which China is the largest consuming country with the highest growth rate. It is projected that China would grow by 5.1 percent annually to reach nearly 1.6 million tonnes by 2010, reflecting largely its rapidly growing demand for tyres. Demand in Indonesia is expected to grow by more than 5 percent annually, driven by the development of domestic processing industries and demand for tyres. India and the Republic of Korea are also major consuming countries in this region. Although their annual growth rates are likely to be only around 2 percent, demand is expected to exceed 0.7 million tonnes in India and nearly 0.4 million tonnes in Korea by 2010. Most other Asian countries would also see their demand increase.

Demand in countries in Latin America would remain at around the current level, largely due to slow economic growth and hence slow growth in demand for vehicles.

Demand in developed countries is expected to remain at the current level, the result of sharply increased demand in Eastern European countries and the former Soviet Union offsetting the reduced demand in the United States and the EU. It is projected that demand in the United States will reach 1.09 million tonnes by 2010, slightly lower than the average of 1.16 million tonnes during 1998-2000. Major car making countries in the EU including Germany, France, Italy and the United Kingdom would see demand weaken slightly in the next decade. Following a period of stagnation since the early 1990s, demand would pick up in Eastern Europe and the former Soviet Union as their economies grow. Japan would see its demand decline slightly, at an annual rate of about 1 percent. As a result, total consumption in developed countries is projected to be about 3.5 million tonnes, about the same as the average consumption level during 1998-2000.

Trade

During 1998-2000, 70 percent of natural rubber was traded in the world market.

Two significant developments in trade occurred in the last decade. Net exports of natural rubber increased less rapidly than production. While production grew at 2.9 percent annually, the annual growth rate of net exports was only 1.6 percent, which was largely due to weak demand in developed countries and strong increases in domestic consumption in producing countries. Also, while new exporting countries, especially Viet Nam, expanded their exports rapidly, exports from a few traditional exporting countries waned gradually. Malaysia, once the largest exporter in the world, saw its exports drop from about 1.4 million tonnes in the late 1980s to less than 0.2 million tonnes in 2001, while Sri Lanka's exports declined from nearly 0.1 million tonnes to about 0.03 million tonnes. On the other hand, Viet Nam exported almost 10 times more in 2001 than in 1988-90, with an annual growth rate of 21.6 percent, a trend that is expected to continue in the current decade.

World net exports in 2010 are projected to grow by 1.3 percent annually to reach 5.5 million tonnes, 15 percent above the average of 1998-2000, with the bulk of the increase from Indonesia, Viet Nam and some smaller Asian countries. Exports from Indonesia should grow by 2.1 percent to reach about 1.9 million tonnes, and exports from Viet Nam are expected to reach 0.5 million tonnes by 2010, with an annual growth of 8.1 percent. Thailand would experience little change in exports, largely reflecting its slow increase in production and higher domestic demand. Exports from Malaysia would continue to decline at an annual rate of 9 percent. As a result, it is expected to export only 0.12 million tonnes by 2010, just 8.5 percent of its 1988-90 level. Net exports from Sri Lanka are likely to have disappeared by 2010 because of declining production and increasing domestic consumption. Export availability in Africa and Latin America would continue to grow. However, their shares in the world market are still small. By 2010, exports from Africa and Latin America would be 0.38 and 0.03 million tonnes, respectively.

Developed countries are the largest importers in the world market. Although import demand in developed countries increased steadily last decade, higher growth in import requirements from developing countries was the major determinant of imports. It is projected that growth in imports will be essentially flat in developed countries while developing countries as a whole would grow by 3.5 percent annually in the current decade. Economic growth in developing countries which induces greater demand for cars and hence tyres is the major factor responsible for the higher growth rate. Notable growth is expected in China, which would import more than 1.1 million tonnes by 2010 with an annual growth rate of 8 percent next decade. Higher import demand from China accounts for almost all import growth in developing countries.

Issues and uncertainties

The last decade witnessed considerable change in world natural rubber suppliers. The emergence of new low-cost producing countries forced a few high-cost countries to shift away from natural rubber production.

On the demand side, with economic growth developing countries have become increasingly important importers in the world market. These trends are expected to continue in the current decade.

Natural rubber prices declined steadily after 1996 and reached a historical low in 2000. While prices have recovered somewhat since then, they are still significantly lower than in 1996. Demand is likely to grow steadily in the current decade, leading to some tendency towards higher prices. However, price increases tend to be dampened because they promote increased production on the one hand, and increased use of synthetic rubber on the other. In addition, existing excess stocks may take a few years to be cleared.

Table 2.64. Natural rubber, actual and projected production

Source: IRSG, own calculations