A dwindling rubber supply could cause long-standing issues for automakers.
Even as sales dramatically rebound from a COVID-hit industry, new problems could cause greater supply issues than automakers are currently facing. This time, it’s not semiconductors (though we’ll feel the lingering effects there for awhile) — it’s rubber. According to a new Bloomberg report, natural rubber prices are hitting a four-year high and analysts say it’s a “structural” problem in the chain that won’t shift anytime soon.
Supply disruptions caused by the coronavirus pandemic are wreaking havoc in the rubber market, after availability and cost remained relatively stable over the past several years. Now, as prices skyrocket, U.S. firms are scrambling to snap up whatever stock they can before the market gets even more precarious. “It’s like paper towels early on during the COVID crisis,” said Steve Wybo, head of consulting firm Conway MacKenzie. “If you can get your hands on some plastic, or some rubber, you’re going to order more than you need because you don’t know when you’re going to be able to get it next.” As suppliers throughout the industry do just that, it dries up stock for the next buyers in line, and so on.
While automakers aren’t sounding the alarm just yet, tightening demand create enormous problem for producers. Thailand is one of the world’s largest natural rubber exporters, and farmers struggled with low prices in the years leading up to the pandemic. They ultimately tapped more trees to compensate for lower per-volume income, and were discouraged from planting more trees. What’s more, because rubber trees take around seven years to mature, it’s not easy for the industry to quickly adjust to rapid fluctuations in pricing and demand.
The U.S. hit supply issues in late 2020
As with semiconductors, U.S. automakers had some access to rubber stocks after COVID lockdowns originally lifted last year. However, the global supply ultimately shrunk as China began stockpiling last year. The United States, for its part, finds itself in a tough position as firms did not stockpile, nor is there a national stockpile to serve as a safety net, and now face major price hikes. Not only that, but other industries that demand natural rubber, like gloves and packaging tape, also hit the available supply. It’s not just rubber either (as we’re seeing with the chip shortage) — precious metals also run the risk of supply shortfalls, as electronics demand spikes.
Robert Meyer, CEO of rubber firm Halcyon Agri Corp., noted that prices could more than double from the current high of $2 per kilogram as of late February to as high as $5 per kilogram. For decades, automakers relied on “just-in-time” manufacturing — keeping as little inventory on-hand as possible. Now, though, as the semiconductor shortage slashes billions in revenue from automakers across the board, dwindling access to natural rubber exposes the vulnerability created by that strategy in periods of volatility. Petroleum-derived synthetic rubber can work for some applications, but apart from the supply and environmental problems that creates, the natural material as a component in tires and several under-the-hood components means manufacturers could feel a huge squeeze before long.
Automakers including General Motors, Ford and Stellantis have not yet expressed concern over the their rubber supply yet.