COVID-19 Impact on Natural Rubber in Chemical and Materials Industry
Natural rubber is a type of rubber made form milky white liquid of some plants commonly known as latex. It is released in case of cutting of plants. Natural rubbers are elastomers which occur naturally. About 99 percent of world’s natural rubber is produced from rubber tree called as hevea brasiliensis. Natural rubber is isoprene polymer with chemical formula of (C5H8)n which can be pulled apart adding elasticity property in the natural rubber. The preparation of natural rubber involves five basic steps such as: rubber tapping, mastication, calendering, extrusion and vulcanization. Natural rubber can withstand high water resistance, flexibility, cutting and tearing resistance, wear and abrasion resistance and other chemical resistance with a temperature range of 58 to 212 degrees Fahrenheit. Natural rubber adheres quickly to other materials and provides high tensile strength. All the above properties increases the use of natural rubber in applications such as anti-vibration mounts, drive couplings, springs, bearings and rubber bands. Natural rubber demand is high by the manufacturers because of the low cost of manufacturing with satisfactory performance in many applications. According to the Association of Natural Rubber Producing Countries (ANRPC), the demand of natural rubber is going to increase in third quarter of 2020 with increase in demand in automobile sector.
Natural rubbers are extracted from only one type of rubber tree that are cultivated in particular area under specific climatic condition. So the aim is to find new areas with stated climatic conditions for more production of natural rubber to meet the demands. The government is focusing on more supply of natural rubber as it occurs in pure form bonded with proteins, amino acids and phospholipids that will not affect the environment. The COVID-19 pandemic has impacted the market of natural rubber. A 6.8 percent fall in demand is found as compared with last year data. This made the manufacturers to plan new strategies to deal with deficit market with no trade of material.
IMPACT OF DEMAND OF NATURAL RUBBER
Natural rubber is consumed as industrial raw material and can be processed to be used in agricultural commodity as well. The market demand of natural rubber has decreased due to current pandemic situation putting the natural rubber industry in crisis in first and second quarter as stated by Association of Natural Rubber Producing Countries (ANRPC). Due to the chaos in value chain and decrease in demand in automobile sector, the whole rubber industry is in the worst phase in comparison with demand in last two decades. But the market is accepted to witness a recovery with growth of demand in rubber gloves and other medical equipment which would stabilize the market of natural rubber. Also, the Indian government has drafted National Rubber Policy 2019 considering economical, social and environmental aspects ensuring the development of entire value chain of natural rubber industry.
According to Association of Natural Rubber Producing Countries, the natural rubber market is dropped by 8.7% till August 2020. A 3.8% fall is anticipated in the natural rubber demand and is anticipated for the remaining four months. But in China, a 4.9% growth is expected in natural rubber market in third quarter of 2020 with a rise in demand in imported tires, heavy trucks and passenger vehicles.
The major difference between natural rubber and synthetic rubber is that natural rubbers has high tensile strength and tear resistance with low odor as compared to synthetic rubber. The natural rubber is not dependent on the refining process of coal, petrochemicals or oils as they are extracted from rubber tress directly reducing the cost of manufacturing. As natural rubber is used in many applications especially in automobile sector in manufacturing of tires, seals, gaskets, shock mounts, vibration isolators and others, the demand of natural rubber are witnessing a high demand. Due to the prevailing situation and change in regulation with shift in BS IV to BS VI engine and introduction of electric vehicles, automobile sector demand has slow down impacting the demand rate of natural rubber.
IMPACT ON SUPPLY
The global natural rubber import demand is reduced by about 2 million tons that is by 19.7 percent in January to April 2020 due to COVID-19 situations. This has resulted into gap in demand and supply value. The global oversupply of natural rubber is multiplying at a faster rate. The import percentage from China, the U.S. and Japan who are the major importers is reduced by about 4.9%, 9.2% and 13% respectively. The rubber manufacturers are in fear of price drop with increase in surplus natural rubbers and seek to have some protective measures from government such as credit line for working capital, moratorium on existing loans, and safeguard duties. To stabilize the market of rubber, government of Malaysia has announced International Tripartite Rubber Council (ITRC) frame work for major producers of natural rubber namely Thailand and Indonesia to support internal supply of natural rubber. Thailand has exported up to 40 percent of natural rubber and is all set to reduce the rubber tree plantation by about 21%. This will affect the supply side of natural rubber resulted into impacting the ongoing use of natural rubber in many industries.
The Rubber Board of India has proposed a relief package of Rs. 1000 crore which curb the losses of natural rubber industry. The proposal also includes zero-interest loans and part-funding of price-stabilization corpus. This will support the plantation of natural rubber by paying the wages and maintenance charge. The major impact on supply of natural rubber is due to the interrupted supply chain with the declaration of country wise lockdown to combat COVID-19 pandemic. The set of rules such as social distancing resulting into shutdown of industries has impacted the demand of natural rubber which increases the supply value. The steps taken by governments regarding investment will stabilize the market of natural rubber.
FUTURE OF NATURAL RUBBER
The post COVID-19 market aspect of natural rubber is not as promising as before COVID-19 market. The critical long term strategic challenges have put manufacturers to think on it. The implementation of lockdown has restricted the plantation of natural rubber leading to loss of opportunity for sector. The reduction in trade of natural rubber has reduced the capital or cash flow reducing further investment plans. According to the Rubber Board of India, approximately 3 quarters would be required by the natural rubber industry to be in pre-COVID-19 scenarios as a loss of 65,00 metric tons in production is been recorded in April and May. But, along with that, it is important for the manufacturers to encapsulate the new market opportunity in post COVID-19 days.
On the other hand, with a steady increase in natural rubber market from September, a sign of relief for the manufacturers is observed. The market of rubber gloves has increased by about 26% to 30% because of the pandemic opening up the market opportunity for natural rubber manufacturers by taking rapid and short term decisions. Thus, by adopting the new opportunity in the market, profits can be made without having much difference in the working capital requirements by prioritizing the work to be done.
The impact of COVID-19 will not last forever and thus it is important for the manufacturers to move along with the economic swings. The recent surge in rubber gloves market has made producers to produce more latex, the main raw material for rubber gloves. With integration with different demanding sectors, a more synergy in the demand and supply side will be attained with low variation under different situations.
IMPACT ON PRICE
With an observed decrease in demand and increase in supply of natural rubber, a definite reduction in price of natural rubber is seen. In April 2020, the spot price of natural rubber was dropped to USD 1.33 per kilogram which was USD 1.68 per kilogram in January 2020. If the demand of natural rubber keeps on decreasing, the price of natural rubber will keep on decreasing. But due to the import ban on raw natural rubber, Rs. 100 per kilo in price of raw material is been witnessed means 33 percent rise since July this year.
In the first quarter of 2020, 15.80% reduction in price of natural rubber for Malaysia Latex was observed with USD 111.40 per Kg in January to USD 96.20 per kg in April. Also, a 37.28 percent rise in price is observed for same Malaysia Latex in August to October 2020 data of spot price declared by Association of Natural Rubber Producing Countries.
Natural rubber is a product of rubber tree (hevea brasiliensis). The latex of the tree is collected from the bark through the process of “tapping”. 70 percent of the latex produced is consumed in tires production. The natural rubber low market price leads to difficulty for the manufacturers of latex to survive in challenging business market. The COVID-19 impact has also affected the market of natural rubber. So, to overcome the major losses, the government of major natural rubber producer is extending their help to combat the situation. The manufactures are also gearing up to plan short term business plans for investments and trade agreement decisions to acquire stable state in business.
The producers are also facing a fluctuation in the demand and supply of natural rubber leading to price variation. The gap in demand and supply needs to be settled down by predicting the future market trends to avoid any discrepancy and losses. So, the governments are taking initiatives such as fixing the base price of natural rubber import and export value and financial benefits to help small and medium scaled enterprises. Thus, the market of natural rubber is been affected by the impact of COVID-19 by disturbing the demand-supply balance.