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As crude oil prices continue to decline, synthetic rubber -- which is made from a byproduct of crude oil -- is likely to become even more attractive to manufacturers that use the product.
Brent crude prices have been heading southward - from nearly $115 a barrel in mid-June to just about $90 a barrel on Monday, a 27-month low - largely because of rising global supplies from US shale reserves and Libya, and subdued demand due to economic weakness in China and Europe.
Brent crude prices have been heading southward - from nearly $115 a barrel in mid-June to just about $90 a barrel on Monday, a 27-month low - largely because of rising global supplies from US shale reserves and Libya, and subdued demand due to economic weakness in China and Europe.
This prices advantage is likely to tilt the scales even more in favour of synthetic rubber globally. European manufacturers have already shifted to using more synthetic rubber, a trend that is also being seen in major rubber producing countries like India, resulting in natural rubber falling over the past few years.
In India, natural rubber's share of the market has fallen almost 10% in the past few years to about 70% now. Synthetic rubber prices dropped 15% in Europe and 5% in USA in the second quarter of FY15 from the corresponding period last fiscal.
In line with the increased preference for synthetic rubber, data from India's Rubber Board show a 40.1% jump in synthetic rubber production during the April - May period of the current financial year over the same period last fiscal. Production of natural rubber, on the other hand, saw a drop of 7.1% in the same period.
Snthetic rubber consumption also increased at a greater pace than natural rubber, going up 5.6% to 84,575 tonnes during April - May period while natural rubber consumption increased only 0.6% to 80,100 tonnes.
The mismatch in production and consumption of synthetic rubber has also meant higher imports of the product into India, with 371,839 tonnes brought into the country during 2013-14. The total consignment of natural rubber, however, was 325,190 tonnes.
According to estimates, European manufacturers use 60% synthetic rubber and 40% natural rubber while in India the usage ration is 70:30, given that natural rubber is cheaper. The fall in crude prices, however, could change that pattern, especially given the quality of synthetic rubber.
According to experts, the shift to synthetic is because of quality upgradation targeting different end uses. There has been little done by way of research for natural rubber, leading to indifferent quality, a key reason for the fall in natural rubber prices, an industry expert told Business Standard on condition of anonymity.
He said that as the quality of synthetic rubber is graded up according to industry requirements, natural rubber will face an increasing threat.
| Synthetic rubber production, consumption in years [In tonne] | ||
| Financial Year | Production | Consumption |
| 2010-11 | 110,340 | 411,436 |
| 2011-12 | 110,599 | 423,350 |
| 2012-13 | 108,692 | 444,160 |
| 2013-14 | 112,886 | 483,575 |
| [Source : Rubber Board] | ||
