Rubber Bounces Back on World Market
AFTER a decade of uncertainty, one of the world's leading commodities appears to have rebounded. Natural rubber is overcoming years of low prices and appears to be gaining on its rival, synthetic rubber. The impact on many producing nations will be significant. Several sectors of the economies in countries such as Malaysia and Indonesia are based on rubber output.
Rubber's fortunes are determined in part by structure of prices. International accords concluded eight years ago brought together producers of the developing world as well as consuming nations - mostly from the industrialized world. That pact is often cited as the only functioning international commodity agreement.
``The goal never was to establish a cartel,'' says Lim Kem Liak, the Malaysian primary industries minister.
Buffer stocks are provided, and prices are adjusted as markets change.
``It's an insurance policy against recessions,'' according to Fred Siessenger at the United States Department of Commerce. He led US delegations to global rubber negotiations. That accord provides a measure of certainty for both sides of the equation by guaranteeing a price range, 11 cents to 24 cents a pound at current exchange rates. Negotiations by nearly three dozen nations this spring were held at Bangkok. Those meetings, sponsored by the International Natural Rubber Organization, concluded that price increases were justified.
In the 1980s, investment rose in competing commodities. The Southeast Asian producers, led by Malaysia, had favored palm, coconut, and other edible oils, but concern over their fat content has hurt the market. So in the past year, investment has returned to rubber. Despite the fact that returns on investment are longer term for rubber - trees do not usually yield the substance for six or seven years - rubber's future is now viewed as more secure compared with other commodities.
Competition between synthetic rubber and natural varieties intensified since the first ``oil shock'' in 1973-74. By 1980, synthetic rubber accounted for 65 percent of all rubber usage. Today, that figure is dropping. A major battleground is, not surprisingly, over use in automobile tires. Popularity of all-season tires helped the synthetic variety. But rubber has more recently been introduced into tire walls.
``Natural rubber is often preferred because of its low heat buildup,'' says Kok-Kee Hon, technical analyst for the Malaysian Rubber Research Bureau. ``It rates better in tactility in products like surgical gloves.''
Another factor favors rubber. ``As oil prices rise in the 1990s, synthetics will lose some of their appeal,'' declares Ron Duncan, a specialist at the World Bank.
Use of rubber has risen by 7 percent worldwide from 1987-88. Reasons are rising automobile output, stronger demand for health-care products, biomedical equipment, and products such as surgical gloves (with AIDS contributing to an increase in rubber production).
Consumption patterns are changing. Many experts believe that economic development is occurring so rapidly across Asia that the region will soon overtake North America as the leading purchaser.