Natural Rubber Supply to Remain Tight Into Next Year.

Natural rubber will remain in tight supply next year as yields from aging trees decline and output growth slows, said the Association of Natural Rubber Producing Countries.

“While supply remains tight throughout this year, the possibility of change is remote in 2011 also,” Jom Jacob, the group’s senior economist, said in a monthly statement. The market remains “bullish” as supplies have been disrupted by rains in Thailand and Indonesia, the top two producers, said the group.

Rubber advanced to the highest level in almost five months today amid expectations that the global market is set for the worst shortage in four years next year as weather constrains supply and demand keeps expanding.

“Tight supply amid growing demand for tires will fuel rubber prices further,” Umaporn Thepnuan, senior marketing official at Future Agri Trade Co., said by phone from Bangkok. Rainfall in southern Thailand, the country’s main production area, may continue, which will probably cut supply, she said.

Production in Thailand may decline 3.9 percent in the third and fourth quarter, compared with the same period last year, the producers group said. Thai output tumbled 23 percent in July because of extended wintering and rains, the group said. The low-production period known as wintering takes place from February to April, when rubber trees shed leaves and latex output slows.

Thailand may produce 3.28 million metric tons of natural rubber this year, up from 3.16 million tons last year, the group said. Indonesia may produce 2.59 million tons, up from 2.44 million tons, it said. The forecast may be revised, depending on the situation in the two countries, Jacob said.

Demand Slow

Demand from China, India and Malaysia slowed down in the July-to-August period from the first quarter, reducing imports from the three countries, which account for 47 percent of global demand for natural rubber, the group said.

Consumption of natural rubber in China, including the premium grade of compound rubber, is expected to increase 4.3 percent in the third quarter, compared with growth of 28 percent in the first quarter, it said.

Demand growth in India will probably slow to 1 percent in the July-to-September period, from 12.2 percent in the first quarter, the group said.

The association represents Cambodia, China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand and Vietnam.

Source : businessweek.com