According to Michelin & Cie., Europe’s biggest tire maker, the current collapse in natural rubber prices across the world is coming to an end as the material’s producers are hitting rock bottom, and unable to cover costs will move to reduce production.

Luc Minguet, senior vice president and chief procurement officer at Michelin says that today the rates have floored at around $1.50 a kilogram, with futures averaging $1.583 in the past 12 months and sitting at $1.429 on Tuesday. “At this level of prices, we see supply starting to adjust, simply because people at plantations cannot make a living,” commented Minguet. “They reduce their production.” With an abundance of maturing trees increasing the output of latex and China, the world’s largest consumer of rubber, having an economy that has slowed its expansion to the slowest level since 1990, the futures have hit rock bottom after dropping 75 percent from a record in 2011. The collapse has helped tire makers reduce costs but also brought concerted efforts from the producing countries – such as Thailand, Indonesia and Malaysia – to reduce supply.

According to Minguet, a Michelin veteran for the past 12 years, worldwide demand for tires is set to increase by around 2 percent to 5 percent during the next half decade as mobility becomes increasingly important and the number of vehicles on roads continues to rise. According to the Singapore-based International Rubber Study Group, vehicle tires make up around 70 percent of the global demand for natural rubber.

Via Bloomberg


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