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Shortage of Rubber Results in Increase in Tire Prices

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On: Thu, Sep 23, 2010 at 9:08AM | By: Sherry Christiansen


Shortage of Rubber Results in Increase in Tire Prices

As a result of drought conditions and heavy rains, the supply  of rubber has recently declined causing forecasters to predict an increase in the price of rubber over the next 2 years. As demand for rubber exceeds the supply, prices that have already begun to go up by major tire dealers, such as Goodyear and Bridgestone, will continue to climb.

Bloomberg News reported in a recent article that in 2009 there was actually a surplus of over 200,000 tons of rubber, compared to this year’s supply coming in at a shortage of 60,000 tons. In the commodities market, the price of rubber has already risen to a “near-record”  high cost of $4 per kilogram, according to Automotive News. In the stock market many investors will take advantage of the sudden increase in the commodity price. 

The rubber tapping season which normally takes place in Indonesia, Thailand, and Russia has been shortened due to unusual climate which has resulted in the shortage.    

With rubber harvest falling short of expectations, Bridgestone, Goodyear, and Cooper Tire have not only raised this year’s prices, the companies have also announced that the cost of tires will go up again next year in October.

Experts are projecting that the shortage of supply along with the uncertainty of the economy will be factors influencing the continued rise of rubber goods including tires.

Tire prices are estimated to go up as much as 6.5% in October—on top of already higher prices this month, according to reports by Goodyear and Bridgestone.

Rubber has been the primary substance that makes up products such as tires, rubber gloves for medical use, and other products.

According to Pongsak Kerdvongbundit, managing director of a Thailand-based rubber plant: "Drought earlier this year and heavy rains later on hampered tree-tapping across Asian plantations." Kerdvongbundit also stated: "Global production will lag behind soaring demand for at least another two years.

Although product consumption has not been on the rise in the United States, in other economic markets in the world, rubber demand has been projected to go up by 9.4% this year to 10.21 tons, according to Bloomberg news.

Keith Price, spokesperson for Akron Ohio Goodyear stated: "We don't do a lot of raw-material hedging." Raw-material costs are expected rise 30%-35% this quarter from a year ago and another 30% in the fourth quarter, the company said on a conference call July 29.

Bloomberg News data reports that “Current prices of $3,370 a ton for so-called Technically Specified Rubber used in production of tires are 53% more expensive than synthetic alternatives made from oil.”

According to Yuichiro Isayama of Goldman Sacchs in Tokyo: “ it's impossible for tire makers to substitute immediately synthetic for natural rubber.




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