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Rubber products industry outlook strong despite low NR prices

27 Aug 2014 - {{hitsCtrl.values.hits}}

It is accepted that the future of rubber industry is tied to the global economy. The consumption of rubber worldwide during the last 10- year period had between 3.5 and 4.0 percent annually and was in line with the increase of world GDP.

The growth rate for rubber should be more than those for motor vehicle production and motor vehicle registration in the coming years. Non-tire applications account for the majority of usage of rubber at 52 to 54 percent of the total, with little change expected. There are and will be numerous applications in various sectors like:

Consumer (toys, door moldings)
Automotive (belts, hoses, gaskets, moldings)
Industrial (adhesives, padding, belting, vibration dampening, wire sheathing)
Construction (roofing, sealants, moldings)

The Asia/Pacific region is by far the largest market for rubber, and the region is expected to post the strongest growth in rubber consumption through 2015

Rubber consumption
Global rubber consumption is likely to grow faster in 2014 on rising demand from Asia, which along with an expected draw down in massive stockpiles by top consumer China may trigger a rebound in prices, senior industry officials says.

The industry’s optimism comes amid a tumble in tyre-grade prices to multi-year lows on persistent worries about a slowing economy in China, its high inventory and weakness in benchmark rubber futures in Tokyo Commodity Exchange (TOCOM).

The weak rubber market has even prompted the International Rubber Consortium (IRCo), which represents main producers Thailand, Indonesia and Malaysia, to recommend the commodity not be sold at the current low prices.

Prices will bottom out in the next 6-12 months as demand from China could return following an expected run down of its stockpiles. If China grows at 7-7.5 percent, we should see rubber demand coming back. Excess stocks currently present will take 6-12 months to work out, after which we will see a more balanced supply-demand condition, according to an expert.

Inventory in warehouses monitored by the Shanghai Futures Exchange has risen to its highest since 2004, while closely-watched stocks in bonded warehouses in the port of Qingdao have jumped more than 11 percent in the past month to around 340,000 tonnes.

China’a automobile market, the world’s biggest, could post double-digit growth for a second straight year, growing 8 to 10 percent in 2014, the China Association of Automobile Manufacturers has forecast. The auto industry is the top user of rubber.

The International Rubber Study Group (IRSG) expects rubber consumption to rise 4.4 percent in 2014 after posting a 2.5 percent increase last year, driven by demand from Asia.

Demand for natural and synthetic rubber will hit 27.7 million tonnes this year, while consumption in India is likely to rise 8.5 percent to 1.56 million tonnes as auto demand is expected to rise.

“Based on IMF data we are expecting China’s consumption will rise in 2014. So far there is no indication of slowdown in demand from China,” Stephen Evans, of Singapore-based IRSG issues forecasts based on several economic scenarios and the current year’s estimate relies on the International Monetary Fund’s (IMF) global economic growth outlook.

IMF predicts China’s economy should grow 7.5 percent this year, and 7.3 percent in 2015, but recent data has revived concerns over the country’s economy.

Tokyo rubber futures tumbled more than 4 percent on Thursday as downbeat China factory data raised concerns about falling demand and spurred stop-loss selling on TOCOM.

Chinese demand for rubber products
According to a report published by The Freedonia Group, “Demand for rubber products in China is projected to grow 8.8 percent per year to 740 billion yuan in 2017. Gains will be supported by healthy growth in manufacturing production, especially in the industrial machinery and motor vehicle industries. Strong demand gains for both consumer automobiles and other vehicle types, such as medium and heavy trucks and buses, will contribute to growth in demand for tires and other rubber products.

A continuing shift in the tire product mix toward higher-value product types such as radial tires, run-flat tires, air-free tires, ultra-high performance tires and tires of larger sizes will also help drive market gains in value terms. Tires will continue to be the largest rubber product segment through 2017 and beyond, benefiting from expansion in both motor vehicle production and the motor vehicle park.

According to analyst Linda Li, “Growing demand for higher-priced tires as income levels continue to grow will further boost revenues.” Demand for industrial rubber products is forecast to advance 9.4 percent per year through 2017, benefiting from anticipated strong growth in the production of construction machinery, mining and metallurgy equipment, chemical and petroleum machinery, material handling equipment, and metalworking equipment. The industrial machinery and motor vehicle markets have the largest impact on overall rubber product sales, as they accounted for 72 percent of total demand in 2012. Gains in these two markets are forecast to outpace the market average through 2017. Sustained plans to expand industrial machinery and motor vehicle production will continue to stimulate growth. Rubber product demand in the aerospace and other transportation equipment market is projected to grow at the fastest rate through 2017, benefiting from strong increases in the production of commercial aircraft and helicopters, as well as aircraft parts.”

The large amount of motorcycle and bicycle production supports strong demand for rubber utilized in non-motor vehicle tires. China also represents the largest national market for rubber used in motor vehicle tires. The rubber markets in Western Europe and North America will continue to see gains below the global average, although both regions will rebound somewhat from the sales declines seen during the 2005 to 2011 period. Eastern Europe and Central and South America will also register accelerating, albeit below-average growth through 2015, while gains in the small Africa/Mideast market will match the global pace during that period.

Global industrial rubber products demand
Global demand for industrial rubber products is estimated to rise to 4.3 percent annually through 2014 to $97.8 billion. Market advances in developing areas will further increase due to healthy economic growth, rising personal income levels, ongoing industrialization efforts and also due to growth in manufacturing output and fixed investment expenditures.

The industrial equipment market, which includes industrial machinery and equipment, off-road vehicles, will continue to hold the largest share of aggregate demand in 2014.

China, which will surpass the US to become the largest market for industrial rubber products, will account for over one-third of all additional demand generated through 2014. India will also record strong gains, and sales growth is expected to be good as well in a number of lower-volume markets, like Indonesia, Thailand and Malaysia. Advances will continue to be strong in Eastern Europe.

Although there is slight slump, industrial rubber product demand in the US is expected to recover by 2014. Advances will benefit from a turnaround in motor vehicle production and there is ongoing process of recovery in the manufacturing sector. Western Europe and Japan will experience sluggish gains. However, these areas, including Australia and Canada, will continue to be the most intensive users of industrial rubber products because of the advanced industrial and technological nature of their economies.

Mechanical rubber goods comprised the largest rubber product segment in 2009. Suppliers of mechanical rubber products will benefit from continued gains and this is evident due to global motor vehicle production through 2014, as these products are highly represented in this market. Advances will be stronger in the hose and belt segments, reflecting their wide applications diversity and stronger price outlook compared to mechanical goods.

Forecasts
Global rubber consumption is forecast to rise 4.3 percent per year through 2015 to 30.5 million metric tons. Rubber demand will be stimulated by a pickup in tire output growth as global motor vehicle production accelerates following a relatively weak 2005-2008 period in many developed nations around the world. Because tires represent by far the largest market for rubber, growth in output of motor vehicles, as well as rising numbers of motor vehicles in use, greatly impacts the amount of rubber consumed globally.

The Asia/Pacific region will exhibit the fastest gains in rubber production of any region except the small Africa/Mideast market. Gains in China will be especially strong, with the country accounting for over one-fourth of global rubber output gains through 2015 in volume terms. The Asia/Pacific region is also an important producer of non-tire rubber products, and it is expected to account for 80 percent of world market growth in volume terms through 2015.

Asia/Pacific region to see best growth
The Asia/Pacific region is by far the largest market for rubber, accounting for 60 percent of global rubber demand in 2010/2011. In addition, the region will post the strongest growth in rubber consumption through 2015. The massive Chinese rubber market, which alone accounted for nearly one-third of global rubber demand in 2012/ 2011, will record the best gains of any major nation through 2015.

The large amount of motorcycle and bicycle production supports strong demand for rubber utilized in non-motor vehicle tires. China also represents the largest national market for rubber used in motor vehicle tires. The rubber markets in Western Europe and North America will continue to see gains below the global average, although both regions will rebound somewhat from the sales declines seen during the 2005 to 2011 period. Eastern Europe and Central and South America will also register accelerating, albeit below-average growth through 2015, while gains in the small Africa/Mideast market will match the global pace during that period.

Although there is slight slump, industrial rubber product demand in the US is expected to recover by 2014

Tyre rubber to remain dominant
Tyre rubber, which accounted for more than two-thirds of all rubber demand in 2011, is expected to register slower gains than other rubber product sales through 2015 but will remain the larger market segment. Sales will be fueled by strong increases in production of non-motor vehicle tires for bicycles, motorcycles and industrial vehicles tires. Production of such tires in certain areas of the world, especially developing nations in the Asia/ Pacific region, will greatly outpace motor vehicle tire output.

Rubber utilized in non-tire applications will post stronger advances through 2015, but will remain the smaller segment of the rubber market. Market gains through 2015 will be bolstered by a strengthened outlook for global manufacturing activity, which will stimulate demand for rubber utilized in industrial applications like sealing and vibration control. In addition, segment growth will be spurred by the acceleration in motor vehicle production worldwide, which will lead to higher consumption of rubber used in automotive products such as belts, hoses and gaskets.

(The writer can be contacted at [email protected])

Features

Rubber products industry outlook strong despite low NR prices

The Asia/Pacific region is by far the largest market for rubber, and the region is expected to post the strongest growth in rubber consumption through 2015

Although there is slight slump, industrial rubber product demand in the US is expected to recover by 2014

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