In this guide to understanding rubber as a commodity, we’ll explain why it’s valuable, and describe how it’s produced and what it’s used for. We also list the countries that produce the most rubber and explain what drives its price.
What Is Rubber as a Commodity?
Rubber is an important industrial material that derives from a runny liquid plant byproduct called latex.
Rubber’s many uses in everyday life – from tires and tubes to rubber gloves and condoms – makes it an important commodity. As such, rubber plays a central role in the global economy with, besides general supply and demand, prices mainly influenced by automobile demand and crude oil prices.
Why Is Rubber Valuable?
Most natural rubber production comes from latex produced from the Brazilian rubber tree (Hevea brasiliensis). Although other species of plants excrete latex when the bark is cut, few produce enough of the substance to make them economically viable.
Vulcanization enables manufacturers to convert natural rubber into more durable materials.
Invention of the Automobile
With the invention of the automobile in the late 1800s, rubber became an essential material in the production of tires, gaskets, hoses, floor mats, and other automotive parts.
Beginning in the early 20th century, demand for rubber expanded as products ranging from bike tires to erasers to footwear employed the material in construction.
Today synthetic rubbers made from petroleum products compete with natural rubber in industrial applications.
In recent years global consumption of natural rubber exceeded 12.5 million tons, while global synthetic rubber consumption approached 15 million tons.
The importance of rubber to so many industries ensures that it will remain a leading commodity in global markets.
Top Uses of Rubber
Uses for rubber span across many industries including chemical, transportation, agriculture, and aerospace.
|Uses Of Rubber||Description|
|Tires||Automobile tires are made up of about 50% natural rubber, while aircraft tires use 100% natural rubber.|
|Other Automotive||Rubber is used in many automobile parts including brake pads, gaskets, hoses and seals on windows, doors and windshields. Rubber is also used to make airbags.|
|Flooring||Gyms, commercial kitchens, animal shelters and playgrounds are a few types of floors often constructed from rubber.|
|Clothing||Natural rubber forms elastic, which is used in wetsuits, cycling shorts and other stretchable clothing items.|
|Erasers||Rubber can wipe away pencil marks.|
|Miscellaneous||Rubber is used to produce a variety of common items:
Adhesives and coatings
Gaskets for mechanical parts
How Is Natural Rubber Produced?
Rubber trees are tropical plants that require high year-round rainfall with little or no dry season. Dry spells or temperatures below 65℉ won’t necessarily kill the trees, but it will reduce the latex output.
Rubber Tree Plantations
Many farmers grow rubber trees with oil palm as they both require deep soil, stable high temperatures, and continuous moisture. Both trees often require extensive deforestation of land to make room for the crops to grow.
Rubber trees grow quickly and rarely exceed 25 meters in height in plantations. Growers plant the seeds in rows and space them appropriately so that the developing trees receive optimal sunlight.
Once the buds begin to grow, they each form a stem. Each stem produces shoots, which are removed through a process known as disbudding. The stem forms into a fine trunk with branches that form the crown of the tree.
After the first year, farmers replace the trees that have not grown with new seedlings. During this time, the growing trees must be periodically pruned.
Between the fifth and seventh year of growth, rubber trees are ready for tapping. This is the process by which latex is removed from the trunk.
Tapping continues for another 25 to 30 years. Rubber tree farmers use a special knife to cut a wide, V-shaped incision in the tree’s bark and collect the latex that drips from the plant. They then filter and wash the latex before combining it with acid to get the particles to coagulate.
Processing Commercial Rubber
The unprocessed latex then goes through several more steps to produce commercial rubber:
- Mastication and mixing
Mastication and Mixing
Machines grind up the raw rubber using mechanical rollers and presses. This makes the material more sticky and pliable. Then, chemicals are mixed with the raw rubber to make it more durable.
Rollers squash the raw rubber into predetermined shapes. Some of the rubber may be squeezed through hollow tubes in a process known as extrusion.
Workers add sulfur to the mixture and heat it to a temperature of 250℉. This process makes the rubber stronger and more durable.
Top 10 Natural Rubber Producing Countries
|Rank||Flag||Country||Rubber Produced (Metric Tons)|
What Drives the Price of Rubber?
The price of rubber is driven mostly by these five factors:
- Automobile demand
- Crude oil prices
- Trade policies
- Global supply and demand
- The US dollar
About 75% of rubber produced worldwide goes to the manufacturing of tires. In addition, automobile manufacturers use rubber in many other car parts including bumpers, airbags, mats, hoses, and seals. As a result, the demand for automobiles is the most critical determinant of rubber prices.
Rubber traders should closely follow global automobile sales for clues about the market. Emerging markets, in particular, may be important predictors of rubber prices.
China is the largest market for vehicle sales, and, until 2015, was the fastest-growing market in the world. India is the largest market for three-wheelers and second-largest for two-wheelers. Changes in vehicle purchase patterns in these economies can greatly impact rubber prices.
Crude Oil Prices
Increases in crude oil prices make synthetic rubber more expensive relative to natural rubber, while decreases have the opposite effect.
Rubber traders should pay attention to the main factors that can influence crude oil prices. Changes in production levels by the OPEC countries have the potential to move markets, as do changes in production from the increasingly large US shale segment.
A sustained rise in crude oil prices could be very bullish for natural rubber prices. Growers need time to clear land and grow rubber plants. This could create a temporary shortfall in natural rubber and higher prices.
The concentration of rubber production means that a few countries wield incredible influence over supply and prices.
A group called the International Tripartite Rubber Council (ITRC), which is made up of top rubber-producing countries Thailand, Indonesia, and Malaysia, has historically instituted export curbs on rubber to help boost prices.
With 90% of global rubber production earmarked for export to big economies such as the United States and China, decisions by this group can have a big impact on supply and prices
Global Supply and Demand
Because of the long growth cycle of the rubber tree, growers have to anticipate demand well before it materializes. Trees planted today won’t be available for tapping for another five to seven years. As a result, there is great potential for supply/demand imbalances in the natural rubber market.
Strong economic growth could lead growers to ramp up production. However, economic conditions may be very different when the trees are ready to be tapped.
Similarly, growers might curtail production in response to weak economic output. A sudden rise in economic activity could then lead to a supply shortfall.
The US Dollar
As the world’s reserve currency, the dollar can often dictate the direction of commodity prices. When the value of the dollar drops against other currencies, it takes more dollars to purchase natural rubber than it does when the price is high.
Put another way, sellers of natural rubber get fewer dollars for their product when the dollar is strong and more dollars when the currency is weak.
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Below we answer some common questions about rubber as a commodity.
What is the history of rubber?
The origin of rubber traces back to the early civilizations of Central and South America. Long before European conquerors arrived, the indigenous people of the New World used rubber to make bouncy balls, glues, and even rubber sandals.
Despite being native to Brazil, the rubber tree plant is almost exclusively grown in Asia. Beginning in the late 1800s, English planter Henry Wickham exported 70,000 seeds from Brazil to England. These seeds soon made their way to Southeast Asia where farmers in Ceylon (modern-day Sri Lanka) experimented with the plant.
By 1895, more than 300,000 hectares of rubber plants grew in Ceylon and Malaysia.
Discovery of Vulcanization
The discovery by Charles Goodyear in 1839 of a process called vulcanization transformed rubber from a craft material to a breakthrough product of the Industrial Age.
World War II
The beginning of World War II caused profound changes in rubber production. Realizing that Japan controlled large amounts of rubber-producing territory, the United States sought other sources of production.
The Rubber Development Corporation, financed by US industry, tried many ideas. They sent explorers into the Amazon to search for superior strains of rubber that could be grown closer to home.
They even planted dandelions, another source of rubber, in 41 states. Ultimately, the venture that proved most successful was the development of synthetic rubber using petroleum products. By 1964, synthetic rubber accounted for 75% of the rubber market.
The OPEC oil embargo of 1973 created a new disruption for the rubber industry. Surging oil prices caused synthetic rubber prices to double. At the same time, the increasing popularity of radial tires, which required stronger natural rubber, lessened demand for synthetic rubber.
By 1993, natural rubber consumption climbed to 39% of the US market share. Today both natural and synthetic rubbers are used to make automobile tires and many other industrial products.