In the News
09 November 2010 - International [Thailand]
One of the problems that exist in commodity markets is that supply can be badly affected by natural factors over which producers have little control. When supply is disrupted price invariably rises and this is sometimes made worse by the fact that such commodities tend to be produced in concentrated areas of the world. As a result the price elasticity of supply is also relatively low.
Thailand is one of the world's largest producers of rubber accounting for around a third of total world output. The country has suffered exceptional rains in recent months causing extensive flooding which has led to a fall in rubber output from the country. Production of natural rubber in October fell by 82 000 tonnes, 7.6 per cent lower than the same period in 2009. Over the previous six months output rose by 4.5 per cent overall but demand side pressures have now put pressure on price. The improved situation in global car production has meant that demand for rubber for tyres has increased, by 5 per cent in the first seven months of the year.
The result has been an increase in the price of rubber by over 7 per cent last week, reaching $4.35 per kilo. To put this in perspective, in 2002 the price was around $1 per kilo. Whilst new trees are being planted the lead time for new production means that supply pressures will not ease in the short term. With demand continuing to be strong, particularly from China, analysts expect prices to continue to increase in the coming months. This means that companies using rubber as part of its production process such as tyre makers, gloves, boots and condoms face a rise in raw material costs which in turn will mean consumers having to pay higher prices for the finished product.