Over a million tonnes of rubber shortage by 2020

           The article emphasizes that the world will have over a million tonnes of rubber shortage by 2020.(Administrator 1999) Undeniably, the global rubber shortage will reach million tonnes by 2020 due to the boost of consumption of natural rubber to about 16.5 million tonnes in tyres industry. Dr Evans, Secretary General, International Rubber Study Group (IRSG) also stresses that demand of natural rubber for year 2013 may gain 4.7% increase to 11.2 million tonnes. China and India will continue to support the demand of rubber in automotive industry. 

          Scarcity in microeconomic is the excess of human wants over what can be produced by a limited amount of resources. Rubber is predicted to meet scarcity by 2020 because the demand of tyres skyrocketed from the world. The increase in the number of cars, motorcycles, trucks, bus and so on makes the scarcity even greater because all of them need tyres and basically 70% of rubber is used in tyres consumption.(Investment U 2011) Malaysia now is having scarcity in rubber as the production of rubber had declined from the peak from years. One of the reasons is because the opportunity cost for producing rubber. In earlier stage of economy Malaysia that is last 20-30 years ago, the opportunity cost for producing rubber is low compared to other plantation or other industry. However, the decision to plant or tap a rubber tree now is not only depends on current prices, but alternative incomes and alternative costs. The land, capital and labour that go into producing rubber also increase the opportunity cost. As Malaysia industrialized, higher wages in the city has attracted lots of workers and makes land and capital higher in producing rubber. Lands are expensive and mostly used in building to develop the country. Hence, rubber production is threatened by less plantation area and rubber plantation were about 1.7 million hectares 10 years ago and now have become one million hectares, said Ambia, president of Malaysia’s National Association of Smallholders.

Besides, Malaysia lacks of experience rubber tappers and entrepreneurs need to employ foreign workers that require government levy plus recruitment expense. When the contracts for the foreign workers end, they will move to find fobs in the higher-paid manufacturing sector that increase again the opportunity cost of producing rubber. Moreover, entrepreneurs and farmers are rather to put their capital in oil palm which takes shorter time to produce yields, compared to rubber tree that need to take 7 years to be tapped. Owning to these reasons, Malaysia rubber output has decreased and met scarcity.

        Malaysia has carried out brilliant way to increase the production of rubber so scarcity of rubber can be reduced. Malaysian Rubber Board (MRB) launched two strategies that are Malaysian Rubber Industry Strategy and the Malaysian Rubber Board Strategy for the period 2010-2020.(RubberAsia 2012) Malaysian Rubber Industry Strategy sustains the Malaysian rubber industry by contributing to a high-income economy, while Malaysian Rubber Board Strategy chart a roadmap to enable the Malaysia becomes the global excellent centre for Research & Development of rubber.

Tun Dr Mahathir Mohamad also stressed that the government should be more forthcoming in terms of research to stimulate the rubber industry further in a congress. There are six technologies launched in Malaysia which are I-Klon, RITeS, G-TACR and so on.(Kay 2011) For example, I-Klon serves as an alternative to the shortage of experienced clone inspectors while RITeS creates an effective mechanism in monitoring the source of rubber planting materials to ensure only good quality planting materials are supplied to the industries.

    USA has a well plan in coping rubber scarcity. United States focuses on research and development to find alternative to replace natural rubber instead of increase planting like Asian countries to increase the supply. Hevea Brasiliensis is the main tree for rubber production and almost all the rubber production comes from it but it needs to take 6 or more years to begin producing latex. Hence, recently the US Department of Agriculture’ Agricultural Research Service,(ARS) are working and improving on genetically engineering sunflower which naturally produce latex to enable the latex produced is same as quality of Hevea rubber.(Phillips 2013) Synthetic rubber such as Isoprene rubber with high heat tolerance of 130C (266F) also invented to function as a substitute goods to replace most of the Hevea rubber. 

Undoubtedly, USA really had excellent measures to solve scarcity of rubber when going back to the history of World War II and the methods can still used in today world. The natural rubber supply from Southeast Asia which US relied on was cut off by Japan during the beginning of World War II. US met scarcity because rubber is pivotal in production of military. Hence, the country came out with 3 solutions which are ensuring an adequate supply of natural rubber, developing synthetic rubber and controlling the use of rubber.(Jstor.org 2013) US set speed limit and encouraged car pool to control the use of rubber in tires and to make enough rubber for production in military but conserving, reclaiming and stockpiling activities could not fill the gap of rubber consumption.

 

Therefore, United States had a program that was United States Synthetic Rubber Program (1939-1945) to increase synthetic rubber supply by having numerous methods and one of it was immediate construction and operation of 51 plants to produce the monomers and polymers needed for synthetic rubber production.(Acswebcontent.acs.org 2010) Due to the previous experiences, US will rather focus on Research and Development of rubber in solving rubber scarcity.

Natural rubber is highly demanded and the price of it reaches $290 per 100kg in March 2013 from $135 per 100kg in 2004.(Truckinginfo.com 2013) However the supply of natural rubber still doesn’t increase enough to fit the demand. It is because global demand of tires increases especially developing countries like China and India having more trucks and cars on the road every year. Therefore, the supply of this situation is perfectly inelastic as the supply curve is vertical and limited although the price and demand increases.

 

 

The supply is limited for the natural rubber. According to Dr Evans, natural rubber consumption is expected to reach 16.5 million tonnes by the year 2020. The natural rubber consumption according to Rubber Board in 2012 is 922,798 tonnes. Due to Hevea trees need to take at least 6 to 7 years to be able to produce rubber, hence by 2020 it is expected to be over a million tonnes of rubber shortage. 

 

Natural rubber is raw materials for tires production, thus tires prices have skyrocketed and have increased an average of 70% from 2009. Bloomberg News reported that Bridgestone, Goodyear and Cooper tire will raise their prices for 6.5% in October after already raising the price in June because of a worldwide shortage of rubber has pushed up rubber cost.(Phillips 2011) The price for a decent steer tires price now has reached to average $560 compared to 10 years ago which is $300.(Truckinginfo.com 2013) The law of demand states that the higher the price of a good, the smaller is the quantity demanded and vice versa. For developed countries such as USA and United Kingdom, when the price of tires increased from $300 to $560, the quantity demanded decreased.

 

However, for developing countries such as China and India, the quantity demanded for automotive is extremely high and still the same although the price of tires is rising from $300 to $560 per tire.(Dunntireblog.com 2012) The price elasticity of demand for this case is perfectly inelastic demand show that the quantity demanded doesn’t change when the price increases. 

A substitute is a good that can be used in place of another good. The substitute goods for natural rubber is synthetic rubber which is made by human. Mostly, synthetic rubber is used in producing tires, footwear, belt, tubes and other items. There is now a new wide range of synthetic rubber available which are able to cope with high and low temperature, contact with fluids in high pressure and stay durable in aggressive or corrosive environments. (Bridgestonetrucktires.com 2001) Besides, the price of synthetic rubber is cheaper compared to natural rubber because the limited production of natural rubber pushes up its price. Owing to these reasons, lots of firms that produce rubber-based products choose synthetic rubber to replace and minimize natural rubber in producing the goods. Bridgestone now is working on reduce the capacity of natural rubber in tires by replacing it with synthetic rubber to more than 20% of the overall weight of tires.(Bloomberg 2013) Besides, lots of tires industry having their own plant for synthetic rubber production. For instance, Bridgestone opened a plant for the production of synthetic rubber in Huizhou, Guangdong Province, China in December 2008.(Bridgestone.com 2008) By having synthetic rubber, firms are able to reduce their cost of manufacturing rubber-based materials. In 2012, the synthetic rubber consumption reached 15,094 tonnes and exceed the production of natural rubber which is 11383 tonnes.(gov.my 2012) The graph below shows the increase in demand of the synthetic rubber. 

 

 

In conclusion, synthetic rubber is effective to prevent the shortage of natural rubber. Nevertheless, the consumption of natural rubber is always there because rubber-based products still unable to completely replace by synthetic rubber. Research and Development of synthetic rubber is still going on to improve the quality to replace natural rubber. Furthermore, synthetic rubber is comes from oil, and as we all know that the price of crude oil is also keep on increasing due to the demand. Hence, according to experts, as price of oil rise, the price of synthetic rubber goes up and that actually cause the rubber-based production firm to headache with as both natural rubber and synthetic rubber price goes up.(Azom.com 2011)

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