Following Semiconductors, 'Gomu' Also Faces Supply Shortage... Concerns Over Shock in the Auto Industry

International Rubber Prices Surge Over 70% Compared to April Last Year
Tire Industry on Alert..."Transaction Prices Up 20% Year-on-Year"

[Image source=Association of Natural Rubber Producing Countries (ANRPC) website]

[Asia Economy Reporters Hyunwoo Lee, Jehoon Yoo] Following the shortage of vehicle semiconductors, the price surge of natural rubber, the main raw material for tires, has begun due to supply shortages, making it inevitable for the global automotive industry to be impacted. The domestic tire and automobile industries are also on high alert.

According to Bloomberg on the 20th (local time), U.S. automakers, which had mainly focused on semiconductor supply issues until the end of last year, are recently competing to secure natural rubber. Concerns have been raised that the sharp rise in rubber prices, driven by fears of natural rubber shortages, will affect the increase in automobile production costs.

International natural rubber prices began to surge from October last year after hitting a low point in April 2022, early in the COVID-19 pandemic. According to the Singapore Commodity Exchange (SICOM), the monthly average price of RSS3 grade rubber, the benchmark for natural rubber prices, rose from $1.33 per kg in April 2022 to $2.37 last month, an increase of over 73% in 11 months. The average price until the 20th of this month remains at $2.22, stubbornly staying above the $2 mark.

According to the Association of Natural Rubber Producing Countries (ANRPC), a coalition of Southeast Asian rubber-producing nations, natural rubber prices had fallen to around $1 amid an oversupply since 2017 and had been on a downward trend for over three years. However, prices began to surge last year as Southeast Asian countries closed many rubber plantations to enforce COVID-19 quarantine measures, compounded by China's stockpiling.

In the ANRPC's report on major countries' natural rubber imports last year, China imported 5.44 million tons, ranking first by a wide margin. This amount exceeded the combined imports of other major countries such as India (1.04 million tons), the European Union (EU/990,000 tons), and the United States (850,000 tons). China's stockpiling is interpreted as a strategy to secure large quantities of natural rubber for producing medical gloves and medical devices amid the COVID-19 pandemic.

Since natural rubber is made from latex extracted from trees, unlike semiconductors, increasing production facilities does not immediately increase output, raising concerns that the supply shortage may persist longer. Warren Thomas, a researcher at Bangor University in the UK, told the BBC, "Rubber trees need to be planted for over seven years before latex extraction is possible, so supply chain issues will not be resolved quickly." He added, "Although synthetic rubber extracted from petroleum is price-stable, it has weaker heat resistance and durability compared to natural rubber, making it difficult to replace as a raw material for tire production."

[Image source=EPA Yonhap News]

The domestic finished car and parts industries, already hit hard by semiconductor component shortages, are also on high alert. The tire industry is facing an urgent crisis. According to the domestic tire industry, the price of natural rubber (spot price basis) rose about 20% year-on-year last quarter. As a result, since last month, domestic tire companies such as Hankook, Kumho, and Nexen Tire have raised tire prices by approximately 3-10%.

A tire industry official said, "While we are not yet facing raw material procurement difficulties severe enough to disrupt production, the upward trend is continuing into the second quarter," adding, "If raw material price increases persist, additional product price hikes may follow in two to three months."

There are also concerns that if the natural rubber supply shortage prolongs, the impact could spread to the finished car industry. Lee Hang-gu, a research fellow at the Korea Automotive Technology Institute, explained, "Supply chain issues that began with vehicle semiconductors and other parts are now spreading to materials such as rare earths and natural rubber," adding, "This situation inevitably increases profitability burdens for the finished car industry."

This content was produced with the assistance of AI translation services.