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Poor Car Sales May Curb Global Demand For Rubber

3/26/2009 - Singapore - Global rubber demand could fall more sharply than expected this year, dropping as much as 8 percent if the recession that has slashed demand for cars worsens, industry officials said yesterday. Carmakers have cut output, laid off workers and sought government aid during the economic downturn, cutting the price of natural rubber. Physical rubber prices have more than halved from July's peak above $3 (RM11) a kg. "Our best scenario is still 6.4 percent down (in 2009), but it may even fall to 8 percent if the recession is worse than the IMF predicted in January," said Hidde Smit, secretary-general of the International Rubber Study Group (IRSG). "If the economy is a bit worse this year, then the rebound next year may be about 3 or 4 percent," he said. The International Monetary Fund forecast global economic growth of 0.5 percent in January. The IRSG, which compiles data and issues forecasts for global supply and demand, has already revised down its global rubber demand forecast once, to 6.4 percent, on March 3, versus an initial projection of 5 percent made in January. It is forecasting global rubber consumption at 20.4 million metric tons in 2009, down from 22.179 million metric tons last year. "The fate of rubber is determined by the tire sector. There's such high dependency," said Djoko Said Damardjati, secretary-general of the Association of Natural Rubber Producing Countries. "There's a need for a quick recovery in the economy. While the economy is in its current condition, what we can do is to do our best so that we won't fall apart," he said. The automobile sector accounts for around 70 percent of demand for rubber. Worries over falling demand sent Tokyo rubber futures to their weakest in six years in December, prompting main producers Thailand, Indonesia and Malaysia to trim exports. The key Tokyo rubber contract for August delivery stood at 149.7 yen recently. It is down nearly 60 percent from its peaks last June, but up around 50 percent from the December lows. "There is always hope, there is light at the end of the tunnel definitely, but it isn't clear how long the tunnel is. The important factors, of course, are the economies of the U.S. and Europe," said Smit. "If they get their act together, and of course, if China and India continue to do well, then all will be better." In January, Beijing unveiled support measures for the automobile industry that included halving to 5 percent the sales tax on purchases of cars with engines smaller than 1.6 litres.

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