Vipin V. Nair

Dr Hidde P Smit, Secretary-General, IRSG.

Kochi , Nov. 10

THE International Rubber Study Group (IRSG), headquartered in London, is an intergovernmental organisation that studies various aspects of the global rubber industry. The organisation, founded in 1944, focuses on the demand and supply of synthetic rubber (SR) and natural rubber (NR).

Dr Hidde P. Smit, who took over as the Secretary General of IRSG in January this year, was in Kochi to attend an international conference organised by the Rubber Research Institute of India (RRII). In interview with Business Line, he spoke about the demand-supply issues confronting the global rubber sector. Excerpts:

Your famous prediction of $2 a kg for natural rubber in the near future has created some ripples in the market, especially among consumers. What are the underlying factors for this forecast?

The basic problem is that the total consumption certainly won't go on a straight line — it is going up. If you would like to maintain the percentage of natural rubber in your consumption at the present rate of 41.3 per cent, demand for NR will be there. On the other side, production capacity is reaching a plateau. Many NR-producing countries don't believe this and say they have continuous growth (in production). But it is not realistic. The trees are getting older and there is little replanting. For many countries, we see zero growth or just about half a per cent to one per cent growth. But consumption will grow at 2.5 per cent to three per cent. So when the demand outstrips supply and there is a need for more NR, consumers will have to pay more.

How did this situation come about?

India and Thailand experienced low prices during 1997-98. So farmers did not look at replanting their old trees. Then all of a sudden, prices went up. Then also, farmers did not want to replace their trees. Even though the yield went down, they were getting handsome income.

New plantations in areas like the North-East in India are not adequate. In India, about 5,000 hectares of new plantations come up every year, but if you take the fact that replantation is not happening in all areas, the net addition is only a few thousand hectares. This is the case in many countries such as Thailand. Even in China, there is no increase in production. So we expect the global production of NR to be around 9.5 million tonnes (mt) in five years. (8.63 mt in 2004) If I have my way, I will have as many replantations as soon as possible.

So when do you expect NR prices to touch $ 2 a kg?

Within two years — or even next year. The prices went up quickly in July. In the past, there was never such an effect if something goes wrong, say in Thailand. Now the situation is so tight that, if something happens, the price goes up.

But if NR prices reach $2 a kg, SR will start to replace it more. How will that situation unfold?

In countries like India, this is already happening. The share of SR is going up in the rubber products from India. But in many applications, NR is superior to SR and consuming industries don't want to replace NR and change their technical mix of products. Actually, the consuming industries are comfortable with a price of $2 a kg, though they won't say that. The percentage of NR in a passenger car tyre is 30 per cent. If the price of NR goes up to $2 a kg, the additional cost will be marginal compared to the total price. More than the price, what is much more important for consuming industries is ensuring supply (of NR).

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