The natural rubber crisis and its impacts

The natural rubber crisis and its impacts

The natural rubber crisis and its impacts

cultivation of natural rubber

Key takeaways

The natural rubber crisis’ impacts: 

  • There is a disruption in the supply chain because manufacturers are replenishing their inventory at the same time. Rubber is a natural resource that takes time to grow and cultivate so, when large quantities are ordered at the same time, this rarity in the offer of natural rubber increasing the price.
  • Prices are escalating at a rapid rate and keep increasing month by month.
  • The price of latex gloves will considerably increase in the next months. Substitute products such as Nitrile, Vinyl, and blend gloves will become more attractive for consumers who want a cheaper alternative.

The global natural rubber market was valued at $40 billion in 2020 and exponentially increased in demand. Experts estimate it could skyrocket to a whopping $68.5 billion by 2026. Rubber is a critical raw material when you think of it. Every time you use transport like cars, planes and even on foot, you are using rubber. Rubber is used in more than 40,000 commercial products and is also massively used in Personal Protective Equipment, such as gloves and the mask ear loops. According to experts in the industry, we are on the verge of a global crisis concerning natural rubber. Supply is decreasing while the demand is increasing and its causing a rarity in the product, which results in a considerable spike in the price per ton of this natural resource.

A look into the industry

Because natural rubber is used in over 40,000 commercial products, this makes it one of the most consumed raw materials in the manufacturing industry. Most natural rubber comes from South-East Asia. More precisely, 90% of the world’s production comes from this part of the globe where Thailand, Vietnam, and Malaysia are the main producers. Climate change, diseases, fungus, and Covid-19 are all factors that are affecting the smallholders, a name given to small latex farmers, that are having trouble meeting the rising demand.

As we stand right now, in the rubber industry, there is a disruption in the supply chain because manufacturers are ordering at the same time. During the pandemic, inventories were kept as low as possible to avoid losing money. But now that the economy is getting back to what it was before, manufacturers are replenishing their inventory all at once, creating a rarity for natural rubber which increases the price.

Rubber cultivation and the pandemic

Natural rubber is made from rubber trees found exclusively in tropical climates. When first planted, it takes between 4 and 7 years for the tree to start producing unprocessed latex. This forces the natural rubber extracting companies to analyze the market often to project the future demand. However, the problem we are facing today is that nobody foresaw a pandemic that would explode the consumption of rubber. It created a situation where there were not enough trees producing rubber. Even if thousands of trees were planted tomorrow, it would make no difference in the supply of natural rubber during the pandemic. However, an oversupply of rubber would also increase the offer and if the demand doesn’t increase as well, the price of natural rubber will drop, hurting the companies producing that said rubber.

natural rubber trees
An image of natural rubber trees

Natural rubber growth

Global demand for natural rubber will expand by 7% y-o-y in 2021, according to the Association of Natural Rubber Producing Countries (ANRPC) and the Malaysian Rubber Board (MRB). This rise will be achievable due to increasing demand from the rebounding rubber and tire industries, as well as the pandemic’s increased demand for latex gloves. At the same time, there’s a chance that droughts in Malaysia, Thailand, and Indonesia will result in lower rubber tree yields, threatening a market shortfall.

One of the primary elements driving growth in the natural rubber industry this year is the high demand for latex gloves during the pandemic. Latex gloves and medical equipment exports from Malaysia increased by 95.3 percent in 2020 due to a surge in demand. As the epidemic ends, this factor will fade into the background, but it will continue to have an impact for a few years.

Natural rubber prices soared at the start of 2021 due to increased demand from China’s rubber and tire industries. According to the World Bank, the average price for Rubber RSS3 in May 2021 was $2.29 per kg, up from $1.73 per kg in 2020. Rubber TSR20’s price increased to $1.69 per kg in 2020, with a yearly average of $1.33 per kg.

The PPE industry

Back to the PPE industry, since the price of latex gloves will considerably increase in the next months, substitute products such as nitrilevinyl, and blend gloves will become more attractive to a lot of consumers who are looking for a cheaper alternative.