April 21, 2010 5:57 pm

Rise in rubber inflates tyre prices

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Tyre companies are increasing the price of their products as the cost of rubber, their main raw material input, on Wednesday moved above the key $4 per kilogram level, up more than 40 per cent since January.

The surge came as a drought in Thailand, the world’s largest exporter, curtailed output, a move that coincided with strong demand from China, the leading importer, and from Japan and India. Goodyear Tire & Rubber Co and Continental, two of the world’s largest tyre companies, have announced price increases during the past week to compensate for the increase in raw materials prices.

The companies have pushed up their prices between 5 and 10 per cent. Besides natural rubber, oil is a key raw material for tyres.

Analysts said that Michelin and Bridgestone are likely to follow suit.

The benchmark rubber ribbed smoked sheet 3, or RSS3, was quoted on Wednesday at $4.10 per kg in the physical market, according to data from the Rubber Research Institute of Thailand, up nearly 150 per cent over the last 12 months.

Rubber prices in Thailand hit a bottom of about $1.50 per kg last year.

The rally in rubber in the physical market earlier this month to above $3.50 a kg has already broken one of the longest standing price records in commodities, dating back to 1952, when fears about the potential spread of the Korean War to key south-east Asian rubber-producing countries triggered panic buying. In addition to Thailand, Indonesia, Malaysia and Vietnam account for much of the world’s output.

The current rally follows the worst drought in north Thailand in a decade, which meteorologists have blamed on the lingering impact of the El Niño weather phenomenon. Meteorologists said the recurring climatic event – caused by a rise in the water temperature in the tropical Pacific – hit its peak in January and has since shown signs of cooling. But its impact is now being fully felt on rubber plantations.

Besides supply disruptions, the Association of Natural Rubber Producing Countries has also warned that “buoyant demand” is driving natural rubber prices higher. During the first two months of the year, Chinese rubber imports surged 63 per cent compared with the same period of 2009, the ANRPC said.

“[The] natural rubber market has entered into a demand driven bullish phase,” the group, based in Kuala Lumpur, said in its last quarterly report.

India’s rubber imports surged in January and February by almost 20 per cent.

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