The rise in natural rubber (NR) price has reflected in a sharp increase in consumption of synthetic rubber (SR) in India, where NR is predominantly used for industrial applications.
The low price of SR, compared to NR, for the last couple of years has forced tyre majors to make a switch to SR. According to the latest trend in the consumption pattern, the current ratio of NR-SR consumption of 73:27 is likely to change to 70:30 in favour of SR by the end of the current financial year.
The Rubber Board data reveals that SR consumption increased to 347,710 tonnes during 2009-10 registering a growth of 18.7 per cent against a negative growth of 1.4 per cent attained in the previous year. The automotive tyre sector consumed 238,153 tonnes of SR during 2009-10 as against 185,094 tonnes during 2008-09, recording a growth of 28.7per cent.
The growth in the consumption of NR in 2009-10 was confined to 13.4 per cent. While a decline of 2.5 per cent was recorded in the consumption of NR by general rubber goods manufacturers (354,355 tonnes) last financial year, an increase of 1.6 per cent (109,557 tonnes) was registered in the consumption of SR.
The relative share of consumption of NR and SR in India changed to 73:27 during 2009-10 from 75:25 during 2008-09. The static or lower global production of NR has not only pushed the prices up, but it has also put the rubber-based industries on a tight spot.
The prices of various SR grades have, however, reduced due to the decline in the price of crude oil. During the last one year, the price of NR has increased more than 100 per cent as the local price of the bench mark grade RSS-4 touched a peak of Rs 185 a kg this month.
Natural rubber prices surged to a record high of more than $3,500 a tonne in the global market while SR rubber values are currently hovering around $2,500 a tonne on an average in the Asian markets.
The price hike has been a concern for leading NR growing nations, like Thailand, as they feel that big producers, like tyre companies, might switch over to synthetic rubber as they are cheaper. At present, European and US companies prefer SR to NR and their consumption ratio of SR:NR is 60:40. But the recent big shift towards SR in the Asean region has also added pressure on the price line on SR.
Natural rubber and synthetic rubber prices usually move in tandem as they are traditionally inter-dependent substitutes. Global synthetic rubber prices may surge on strong orders from tyre manufacturers looking for a cheaper alternative in raw material to natural rubber, industry sources said.
The rise in natural rubber prices added pressure to the tight synthetic rubber market, which was beset by spikes in cost of feedstock butadiene (BD).
BD prices had climbed by more than $200 a tonne over the past month to $2,000-2,050 a tonne.
“Natural rubber prices are going up so sharply that synthetic rubber makers have no choice but to raise their prices further,” a Chinese Styrene Butadiene Rubber (SBR) maker said. The price increase would likely lift costs for manufacturers that were heavily dependent on the commodity, particularly tyre makers. The use of synthetic rubber as an alternative may not offer much comfort since prices have also started to run up, market sources said.
Major synthetic rubber makers in Asia, including Kumho Petrochemical (KKPC), LG Chem, Zeon, BSTE of Thailand and PT Sentra of Indonesia, have all raised prices for fresh shipments for both the non-oil grade SBR and butadiene rubber (BR).
Fresh offers for SBR grade were $250- 350 a tonne higher from early March at $2,400-2,500 a tonne, while butadiene rubber (BR) surged to $2,800-2,850 a tonne, market sources said.
