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Rubber Costs
Oct 18, 2018

Everything has a cost—a cost to produce, a cost to buy (i.e., market price), a cost to ship and receive—a cost which is usually not so easy to determine because of these many factors. Not only that, but of course one must hearken back to the timeless idea of “supply and demand.” Yes, we can determine what rubber costs by evaluating what the demand is for rubber, meaning how much it is desired as a commodity in various industries. If there is a low demand for a certain product, its price is likely to be low; conversely, if it is wanted by everyone, then its cost will be increased because it will be that much more profitable. We can also keep track of the rubber supply. If there is a shortage of a product, then the costs are likely to increase, because it is not as easily-accessible; if there is an excess of a product, then its availability will cause the price to drop. All of these factors are important to keep in mind when learning about the price of rubber. As a consumer, these things will affect the expenses that are involved when purchasing commercial rubber or any other form of rubber products, which are present in a number of different industries.

First, it is important to make a distinction when looking at the price of rubber. For the most part, rubber costs can be divided into two broad categories: the cost of natural rubber, and the cost of synthetic rubber. These two products are fundamentally different because of the ways in which they are produced. Natural rubber is produced by extracting latex from the Para rubber tree that is found primarily on plantations in South America and Southeast Asia. Synthetic rubber, on the other hand, is a petrochemical, meaning that it is a product that is derived from petroleum, obtained from fossil fuels! The presence of both of these materials, natural and synthetic rubber, is used to determine what the overall rubber supply is, but they are usually analyzed separately. Both of these materials are used to create commercial rubber that has uses in everyday products.

Analysts predict that there will be a shortage in the supply of natural rubber in the future. This is not only the case because the demand for rubber is increasing in Asian and Pacific countries, but because as the top natural-rubber producing countries—Thailand, Indonesia, and Malaysia—begin to become increasingly industrialized, there will be less of an incentive to create more rubber plantations, and there will instead be a favoring towards further industrialization in the form of creating more factories and other manufacturing jobs. Workers will migrate from the plantations to the cities, bringing about the need for foreign workers to work the plantations. In addition Palm plantations have begun to replace rubber, due to the growing demand for Palm oil. All of these things contribute to a decreasing incentive to plant rubber trees, as well as the possibility of current plantations facing a shortage of labor because more people will desire to work in the cities, where wages are higher. In these newly industrialized countries, even though supply will decrease, the dropping prices are likely to be glossed over because of economic growth in other areas. Since February 2011, prices have steadily declined, falling nearly 50%, and is down to about 143 cents per pound. To remedy this, plantations are planning on slowing production by using aging rubber trees that are no longer in their highest-yielding phases.

The cost of synthetic rubber is directly related to the cost of oil production. Since these rubbers are petroleum-based, they fluctuate with the costs of oil. Factored into this is also the cost of transportation, as well as fuel surcharges. Overall, the prices of synthetic rubber tend to be stable because the producers of these products are also their consumers, meaning that it is a so-called “captive product.” But synthetic rubber is sold to non-producers, and the prices are dependent upon market conditions. These companies also tend to focus many of their expenses on research and development, which leads to the creation of new types of commercial rubbers, refinement of production technologies, and improvements in product quality, all of which can lead to reduced costs of production. Synthetic rubbers dominate the market, and the producers of synthetic rubbers are able to engage in far-more self-regulation. For example, when demand decreases, these producers are able to simply reduce the supply, which will stabilize the costs once again; there will likely always be a gradual rise in stocks. But recently, due to poor economic conditions, prices of synthetic rubber have continued on a downward trend. For example, the price of SBS rubber is $20,500/ton, down $950 from its last pricing. But these prices have been supported by the recovery of crude oil prices since mid-year.

As with any other commodity, it is clear that rubber costs will be in constant fluctuation, due to the many changes that take place in the economy, production, supply, and demand nearly every day. Because the rubber supply is dependent upon factors such as plantation growth, industrialization, economic growth or downturn, and the prices of crude oil, the only thing that can really be predicted is that the price of rubber is subject to constant change. One can only hope that they are able to obtain commercial rubber at a balanced, reasonable cost.