China's car sales surged in the past, strong demand from European and American tire manufacturers, and poor weather impacts on supply all caused signs of no rebound in the rubber market. Rubber prices are expected to remain near record highs in the coming months. The aging of the rubber tree and the shortage of labor may also hinder the expansion plans of the major rubber-producing countries and further support rubber prices. After the global economic crisis in 2008, rubber prices and production fell, but then China's economic stimulus and loose credit environment caused the rapid increase in car sales, leading to unexpectedly large rise in rubber demand. Since then, the recovery in the United States and Europe has promoted a second wave of demand. Auto manufacturers have been relying on growth in emerging markets such as China, Brazil, and India, but sales in Europe and the United States have escalated expectations that the global economic recovery may continue. “The tire industry usually passes the pressure of rising costs on to consumers through slow price increases, with prices rising by 3%-5% each time,†said Jom Jacob, an economist at the Natural Rubber Producing Countries Association (ANRPC). In February 2011, natural rubber prices hit a record high of US$ 6.40 per kilogram, double the price of a year ago, but demand from tire makers such as Bridgestone, Michelin and Goodyear did not show signs of declining. Michelin will raise the highest price by 12%. Goodyear’s quarterly loss was less than market expectations, as higher-margin tire sales offset the rise in rubber costs. More than 70% of natural rubber is used in the production of automobile tires, and even if major producing countries want to expand the plantation to increase rubber production, they may still encounter problems such as weather conditions. The La Niña climate caused heavy rainfall in most of Southeast Asia in early 2010 and early 2011, which interrupted harvesting. The dry winter in Thailand, Indonesia and Malaysia, which account for 70% of global production, will further reduce latex production in the first half of 2011. "Even if the manufacturers have begun to grow rubber trees on a large scale, these trees will be younger and it will take up to seven years before they can start producing latex... Therefore, prices will not fall in the next few years," said Chung Yang, an investment analyst at PhillipFutures. Concerns over supply and turmoil in the Middle East and North Africa pushed up oil prices, propelling the Tokyo Industrial Exchange (TOCOM) to hit a record high above 535 yen ($6.54) per kilogram, which also boosted spot market sentiment. The International Rubber Research Organization (IRSG) anticipates that global demand for rubber, including natural rubber and synthetic rubber, will reach 25.5 million tons in 2011, up from 23.9 million tons in 2010. The Association of Natural Rubber Producing Countries expects its member countries to produce 9.7 million tons of natural rubber in 2011, an increase of nearly 5% from 2010. These countries account for 92% of global production. The 2010 year-end inventory is expected to be approximately 935,000 tons, which is more than 20% lower than in 2010. According to the National Association of Natural Rubber Producing Countries, price increases have driven some producing countries to plan to increase production in 2011, of which Malaysia plans to increase production by 11.8%, while Cambodia, the largest expansion plan, plans to increase production by no more than 60%. The Ministry of Agriculture of Thailand stated that it plans to expand 128,000 hectares (316.3 thousand acres) of planted area in 2011, and has expanded 160,000 hectares since 2004. At present, Thailand's rubber planting area is 1.9 million hectares. Thailand is the world's largest rubber producer. The country plans to export 2.9 million tons of rubber in 2011, up from 2.7 million tons in 2010. According to data from the Indonesian Rubber Association, Indonesia, the world’s second-largest producer, plans to produce 3.08 million tons of rubber this year, which is 10% higher than the 2.8 million tons in 2010. Labor shortage may affect target production The emerging exporting country, Cambodia, is expected to produce 63,200 tons of rubber in 2011, up from 44.500 tons in 2010, all for export. The Cambodian government gives foreign investors rubber tax concessions and long-term concessions. Affected by this, the country's output is expected to rise to 80,000 tons before 2015, when the rubber trees grown by Vietnamese investors will mature and begin to produce latex. However, some countries may not be able to achieve their goals, because excessive harvesting may lead to a decline in production. The flood in November 2010 caused Thailand to lose 16,000 hectares of rubber trees. "Living labor restrictions may force farmers to reduce the frequency of harvesting. Economic recovery and the consequent increase in non-agricultural employment opportunities will worsen the already severe shortage of skilled tappers," said Jacob. "This situation is particularly serious in Malaysia and India. The new generation of tapping workers in the area has started to shift to non-agricultural employment. Rubber has been the most affected because tapping is a technical activity." Price callback Despite the possibility of a price correction in the second half of the year, the decline will be short-lived, even if the government starts raising interest rates to control inflation. "The market is volatile and it is difficult to predict prices, but I don't think the TOCOM rubber will fall below 400 yen per kilogram. The support should be seen near 450 yen, as demand is still strong," said PhillipFutures' Ker. China's auto sales reached a record high in 2010, rising by 16.2% in January 2011, suggesting that demand for tire rubber will continue to be strong. Considering China's strong economy, the reduction in imports of natural rubber in January will be temporary. "This only represents the strategic withdrawal of the tire industry in the short term. As long as the economy is strong, especially the Asian economy, tire demand will remain strong." Jacob said. YC PRECISION TECHNOLOGY & MACHINERY CO.,LTD , https://www.yc-technology.com