TOKYO/BANGKOK (Bloomberg) -- Bridgestone Corp., the largest tiremaker by sales, is raising European prices for the second time this year and Goodyear Tire & Rubber Co. is charging more as rubber gains on prospects for the biggest shortage since 2007.
“Drought earlier this year and heavy rains later on hampered tree-tapping across Asian plantations,” said Pongsak Kerdvongbundit, managing director of Phuket, Thailand-based Von Bundit Co., the largest natural-rubber producer and exporter in the world’s biggest supplier. “Global production will lag behind soaring demand for at least another two years.”
Stockpiles of the raw material, also used in gloves and condoms, will drop 12 percent to 67 days of demand next year, the lowest level in at least a decade, according to Goldman Sachs Group Inc. Consumption will outpace supply by 127,000 metric tons, the most since 2007, the bank estimates. Futures in Singapore may jump 20 percent by March, said Makoto Sugitani, a senior director at Newedge Japan Inc., who correctly predicted the rally in January. That would mean a record $4.20 a kilogram.
Sales of rubber are increasing the most in six years, helped by what the International Monetary Fund says will be the fastest global economic growth since 2007. Rain and flooding in Thailand and Indonesia, the top producers, drenched farms and curbed harvesting. Michelin & Cie., the world’s second-biggest tiremaker, said in July that commodity costs would cut full-year earnings by as much as 650 million euros ($850 million).
Futures may climb as much as 14 percent to $4 a kilogram by March on the Singapore Commodity Exchange, according to the median estimate of nine brokers and analysts surveyed by Bloomberg. Prices reached a record $4.11 on April 15 and closed at $3.50 on Sept. 20, for an advance of 22 percent this year.
Inventories will drop almost 6 percent to 2.05 million tons next year, for a third annual decline, Yuichiro Isayama and three other analysts at Goldman Sachs in Tokyo said in a report Sept. 3. La Nina, a phenomenon linked to extreme weather, is likely to intensify at the end of the year, according to the Thai weather office. That may cause higher-than-normal rainfall in the south, which has 68 percent of the country’s plantations.
Global consumption will climb 9.4 percent this year to 10.31 million tons, the fastest increase since 2004, according to the Singapore-based International Rubber Study Group, which says it has 16 countries and the European Union as contributing members. Demand will exceed output by 60,000 tons, from a surplus of 237,000 tons last year.
Bridgestone announced European price increases Aug. 30. Goodyear and Cooper Tire & Rubber Co., the two largest U.S. tiremakers, confirmed Sept. 17 they would raise U.S. prices from next month to recoup higher raw-material costs. Both companies said they last raised retail prices in June.
World auto sales will increase 8 percent to 68.5 million units this year and 7.2 percent to 73.4 million units next year, according to Ashvin Chotai, London-based managing director at Intelligence Automotive Asia Ltd. The economy in China, the biggest auto market, will expand 8.9 percent next year, more than three times the pace of the U.S., according to the median of as many as 60 economists’ estimates compiled by Bloomberg.
Even as governments fret about deflation, or declining consumer prices, extreme weather from drought in Russia and Ukraine to flooding in Pakistan and Canada is driving commodity costs higher. Wheat as much as doubled since June, while corn rallied to a 23-month high, coffee reached a 13-year peak and cotton advanced to its most expensive since 1995. A United Nations price-index of 55 foods rose to its highest level since September 2008 last month.
‘Chase a Rally’
“Rubber may chase a rally in grains and soft commodities as investors are searching for better places to put their money,” said Tokyo-based Sugitani of Newedge.
The U.S. producer price index increased 0.4 percent in August, the most in five months and twice the gain in July, the Labor Department reported Sept. 16.
Growth in demand for rubber may be undermined by a faltering recovery. Global economic expansion will probably slow in the second half of this year and in the first half of 2011, IMF economists said in a report Sept. 10.
Confidence among U.S. consumers unexpectedly dropped to a one-year low in September. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 66.6 from 68.9 in August, the group said Sept. 17, while U.S. unemployment is close to a 26-year high.
U.S. industrial output increased 0.2 percent in August after a 0.6 percent gain in July, the Federal Reserve said Sept. 15. Manufacturing in the New York region grew this month at the slowest pace in more than a year, said another Fed report.
Auto sales in the U.S. in August were the worst for the month in 28 years, according to Autodata Corp., a researcher in Woodcliff Lake, New Jersey. Passenger-car deliveries to Chinese dealerships in July gained at the slowest pace in 16 months, the China Association of Automobile Manufacturers reported. Almost 60 percent of the world’s rubber is consumed by the tire industry, according to the International Rubber Study Group.
The Standard & Poor’s 500 Index dropped 6.3 percent from this year’s high of 1,219.80 on April 26 on concern the recovery is slowing, while the Standard & Poor’s GSCI Index of 24 commodity futures declined 4.5 percent since the gauge reached 555.729 on May 3. Treasuries returned 5.7 percent since then.
Demand from China and India may have peaked as governments seek to cool their economies and deflate property bubbles, said Chaiwat Muenmee, an analyst at Bangkok-based commodity broker DS Futures Co. Rubber futures declined 9.6 percent since advancing to a 21-month high of 338.5 yen a kilogram on April 16 on the Tokyo Commodity Exchange. They gained as much as 3.2 percent today to the highest level in almost five months.
Tiremakers are passing on the higher costs. Bridgestone said Aug. 30 that it will raise tire prices in Europe from October by as much as 6 percent. Increases by Goodyear and Cooper were for as much as 6.5 percent starting next month.
“We don’t do a lot of raw-material hedging” said Keith Price, a spokesman for Akron, Ohio-based Goodyear. Raw-material costs are expected to jump by 30 percent to 35 percent in the third quarter from a year earlier and by about 30 percent in the following quarter, Chief Financial Officer Darren R. Wells said on a conference call July 29.
Top Glove Corp., based in Selangor, Malaysia, and the world’s biggest rubber-glove maker, passes on “the majority” of higher costs, Executive Director Lim Cheong Guan said.
Rising costs are “a headache,” said Sakae Kubota, managing director of Okamoto Industries Inc., Japan’s biggest condom maker. Competition and demand mean the company is absorbing the extra expense, the executive said.
Prices of $3,370 a ton for so-called Technically Specified Rubber used in tire manufacturing are 53 percent more expensive than alternatives made from oil, data compiled by Bloomberg show.
Goldman Sachs’s Isayama said it’s impossible for tiremakers to substitute immediately synthetic for natural rubber, and even if substitution occurs, the volume should be limited to several percent of total consumption.
Stockpiles monitored by the Shanghai Futures Exchange and the Tokyo Commodity Exchange have slumped. Shanghai inventories plunged 72 percent in the past year while those reported by Tocom tumbled about 47 percent.
Thailand’s production may drop as much as 5 percent to 3 million tons this year as rain disrupts tapping, according to Pongsak. Output in Indonesia, the second-largest grower, may total 2.4 million tons, less than an earlier estimate of 2.6 million tons, said Suharto Honggokusumo, executive director of the country’s rubber association.
“Demand keeps expanding and supplies are at risk,” said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo, who helps manage as much as 35 billion yen and says prices may reach a record by early next year. “The situation may reach a critical point.”