Tire industry 2021, caught between a pandemic and the will to restart
Reliable market forecasts in 2020 are almost impossible, but analysts and associations are still trying to come up with some figures: so what can we expect for the end of the year and 2021.
Now that this horrible 2020 is coming to an end, it is time to look ahead. An exercise that may prove far from easy because, if the year 2020 is now on the home stretch, the pandemic will likely drag on for a while still. All predictions made during the summer months, when it looked like the coronavirus was loosening its grip, may be overturned. In any case, we will still try to paint a reliable picture taking into account the opinions of several stakeholders and producing a forecast for 2021. Rubber Economist, for example, reports that the pandemic has certainly bolstered the production of latex gloves, due to the great demand for obvious reasons. The price of Thai smoked rubber has soared to 60 bath/kg, the highest level in more than a decade. The demand for latex to make gloves has diverted production away from rubber. Latex is expected to increase from 20 to 30% of total Thai rubber production. During the January-July period, latex glove production was up 38.5% compared to 2019, which translates into a total turnover of 959 million dollars.
A desired rebound
Additional data and projections come from the World Rubber Industry Outlook, published by the International Rubber Study Group. The study suggests that global rubber demand is expected to "rebound" by 7.9% in 2021 thanks to rising demand for tires (+6.9%) and, even more, from the growth of other rubber goods, which is expected to soar by +9.3% according to the International Monetary Fund. Furthermore, Irsg also estimates that 2020 will see a sharp drop in global demand for rubber, down 12.6% compared to 2019. The total will then fall to 25.2 million tonnes, mainly due to the pandemic and related containment measures such as lockdowns, restrictions on the movement of people and goods, and factory closures. Regarding natural rubber, demand had already decreased by 1.0% in 2019 compared to 2018, down to 13.62 million tonnes. The IMF's projection points to an 11% decrease in demand in 2020 to 12.12 million tonnes, followed by a 7.8% rebound in 2021. World demand for synthetic rubber was also down 1.0% in 2019 to 15.18 million tonnes. According to the IMF, in 2020 demand is expected to fall by 14.0% to 13.06 million tonnes. By 2021, synthetic rubber is expected to recover by 8%, a little more than natural rubber.
Tires market is struggling, just as the economy.
Listening to the European Tire and Rubber Manufacturers' Association (Etrma), we learn that tire sales in Europe in the third quarter are a cause of great concern. The figures for August, July and September show just how much the sector is faltering due to the impact of the Covid 19 pandemic. We are well aware that the second quarter of 2020 was far from ideal, but the effect of the pandemic lingered also in the third quarter and affected especially the light vehicle tire sector, mainly due to lockdowns and travel restrictions. After a dismal month of May, however, a slight recovery was recorded in the truck, motorcycle/scooter and agricultural vehicle segments. Etrma Secretary General Fazilet Cinaralp pointed out that the crisis is hitting the sector hard. The numbers show that, despite a recovery in the third quarter, business volumes in the first nine months of 2020 are still insufficient when compared to the same period in 2019. The light vehicle segment recorded -14.4% compared to 2019 in terms of replacement, and if that was not bad enough, OE tires did even worse, with -30.4%. The aftermarket for 2-wheelers was also negative, at -11.7% for the first 9 months of 2020. On the other hand, the agricultural sector and heavy duty vehicles managed to limit their losses, with -3% and -8% respectively. Cinaralp hopes that "the pandemic situation will improve. However, we stress the urgent need to find appropriate support measures for the tire industry in order to preserve jobs. However, all forecasts for the end of the year remain negative for all sectors".
Estimates from manufacturing countries
As far as natural rubber is concerned, let us take a look at the report published in October by the Association of Natural Rubber Producing Countries (ANRPC), a body that brings together 13 countries representing around 90% of the world’s production. Global production of natural rubber fell by 8.7% in the period January-August 2020, to 7.778 million tonnes. With the forecast of a further 3.8% decline in the remaining four months, 2020 production is expected to reach 12.901 million tonnes, down 6.8% from 2019. This forecast is 1.9% lower than previously thought in September, which estimated 2020 production at 13.149 million tonnes. We note that even the revised figure is still higher than the IMF-estimated demand which, if confirmed, could trigger a downward pressure on prices. Anrpc reports that world natural rubber consumption fell 11.7% in the first eight months of the year, to 8.151 million tonnes. The association expected activity to recover in all countries, with a faster recovery in China. Under these assumptions, expectations were for better results in the last four months of the year with a contraction of only 1.8% compared to 2019. World consumption forecasts for the full year, therefore, have been revised downwards to 12.611 million tonnes, -8.4% year-on-year and still better than IMF's forecasts.
What kind of recovery can we expect
In conclusion, let us take a look at a forecast produced by Hidde Smit, an analyst with 40 years of experience in the rubber market. Smit draws a parallel with the subprime mortgage crisis of 2008 – 2009 when an abrupt decline in global rubber consumption, driven by an economic downturn that caused retailers to reduce stocks to a minimum and consumers to postpone vehicle purchases. This drop, which was particularly sharp in late 2008 and early 2009, was followed by a recovery that began in late 2009 and early 2010 and brought consumption back to the levels of early 2008. The Covid-19 crisis, according to Smit, will cause global natural rubber consumption to drop by 10.6%, which is not far off the estimates produced by the IMF and the ANRPC. The analyst predicts that the consumption of natural rubber - and rubber in general - will reach in a couple of years the level it should have reached this year. This will probably drag prices down and, in the long run, production as well.