Shortages in natural rubber supplies are forecast to continue over the next several years, putting pressure on tire producers and consumers alike, evidence suggests.

The global supply of natural rubber is expected to continue falling short of production demand for the next seven years, an industry producers’ group says. This shortage will affect tire producers and consumers in the form of higher prices.

“Tightness in supply will continue until 2018 as production growth is marginal or moderate,” Jom Jacob, an economist at the Association of Natural Rubber Producing Countries (ANRPC), recently told BusinessWeek. Supply shortages will continue due to increased demand from developing countries like China and production difficulties in rubber-producing countries.

According to Jacob, rubber plantations will shrink worldwide as farmers uproot older trees between 2012 and 2018.

The Hevea tree, commonly known as the rubber tree, is notoriously difficult to harvest, and it grows only in subtropical climates, mostly in Southeast Asia and the Amazon. Frost can ruin an entire plantation’s harvest. Additionally, older trees eventually yield less sap, and new trees require five years of growth before they are mature enough to yield sap for tappers. Cumulative environmental upsets are also having an effect.

“Drought earlier this year and heavy rains later on hampered tree-tapping across Asian plantations,” Pongsak Kerdvongbundit, managing director of Von Bundit Co., the largest natural rubber producer and exporter, told Bloomberg News last fall.

Additionally, natural rubber inventories will drop 6 percent to 2.05 million tons this year, according to Goldman Sachs Group Inc. estimates, as production lags combine with increased consumption. Analysts at Goldman Sachs forecast supply deficits of 127,000 metric tons due to increased global consumption. This translates to adequate rubber supplies for 67 days worth of demand.

The International Rubber Study Group foresees consumption increasing by 9.4 percent to 10.31 million tons, which will leave a 60,000 ton supply deficit.

China and India, the first and second largest global rubber consumers, are expected to increase rubber demand in the coming years. The ANRPC forecasts a 6.1 percent increase of Chinese rubber consumption to 3.5 million tons this year. The All India Rubber Industries Association expects Indian demand leading to a supply deficit. The Indian government said car sales in the country could double to 3 million by 2015, increasing demand for rubber tires.

Meanwhile, the World Trade Organization (WTO) recently upheld the U.S. government’s decision to impose tariffs on Chinese tire imports, rejecting a complaint from China that the restrictions violated international trade rules and strengthening the position of U.S. customs enforcement policies. In mid-December, a three-member WTO panel found that Chinese tire shipments to the U.S. nearly tripled between 2004 and 2008, rising to $1.8 billion. Domestic tire capacity declined to 186.4 million tires, from 226.8 million, during that period, while production dropped to 160.3 million tires, from 218.4 million.

The panel issued a report in favor of President Obama’s September 2009 decision to impose new tariffs on imported Chinese tire products. The tariffs were set at 35 percent with 5 percent decreases over successive years.

“The United States already had a 4 percent tariff on Chinese tires,” the New York Times reported. “The new duties involved an additional tariff of 35 percent for one year, reduced to 30 percent in the second year and 25 percent in the third.”

American tire producers Bridgestone Corp. and Goodyear Tire & Rubber Co. have already responded to slumping supply and rising demand with price increases over the past year.

Despite the tough road ahead for tire makers, both Bridgestone and Goodyear have invested millions of dollars in improved logistics to continue meeting consumer demand. Since the WTO ruled against China in the tire imports dispute, Money News has reported Goodyear’s intention to invest between $1.1 billion and $1.3 billion per year in 2012 and 2013, up slightly from an expected $1.1 billion to $1.2 billion in 2011. The tire maker said it will invest between $500 million and $600 million the next two years in plant modernizations, expansions and new construction.

“These investments will support a 3 percent to 5 percent annual increase in unit volume, focused on high-value-added tires in high-margin segments,” a Goodyear representative said.

Both Goodyear and Bridgestone reported double-digit sales increases in 2010.

Resources

Rubber Supply Tightness to Last Until 2018, Growers’ Group Says
by Supunnabul Suwannakij
Bloomberg Businessweek, July 20, 2011

Bridgestone, Goodyear Face Deepening Rubber Shortage
by Aya Takada and Supunnabul Suwannakij
Bloomberg News, Sept. 21, 2010

Tire Makers Settle in for the Long Haul
by Forrest Jones
MoneyNews.com, April 22, 2011

Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China
World Trade Organization, Dec. 13, 2010

World Trade Organization Upholds American Tariffs on Tires from China
by Sewell Chan
The New York Times, Dec. 13, 2010

Rubber Shortage Driving Up Tire Prices
by Fred Meier
USA Today, Sept. 21, 2010

The Russians are Coming
by Cynthia Reynolds
Macleans.ca, Aug. 11, 2011