The rubber supply in Japan is at an all time low. The article chosen discusses how the low supplies of rubber are not typical for the time of year. Tokyo rubber or TOCOM is the Tokyo Commodity Exchange which regulates the rubber market in Japan. A rally was held recently which was the largest in years because of the concerns about low supplies and historically low rubber stocks.
The benchmark December rubber contract on the Tokyo Commodity Exchange rose as high as 169.
2 yen per kg, the priciest for TOCOM’s key contract since March 11, 1996, when prices hit 174.6. At the close it was up 3.4 yen at 168.7 (TOCOM.).
The contracts that are already signed between different companies for delivery from August to November of 2005 are not looking too good. The price for rubber is expected to rise five yen on the stock exchange. July’s contracts, which have no price limit, finished up seven at 189.8 yen per kg of rubber. This meant that the rubber contracts hit their life-time high. The expectations of investors in Tokyo are that the price of rubber will peak in August and begin to decrease when rubber supplies increase.
The price gap of rubber between the December and July widened to 21.1 yen.
Rubber supplies have been low due to a delay in shipments from Thailand. Thailand is the world’s largest manufacturer and exporter of natural rubber. The shipments of rubber have fallen due to bad weather conditions. Rubber supplies normally drop from the beginning of February which is winter and the dry season in southern Thailand.
this season, latex output declines because the rubber trees shed their leaves.
Production in general, returns to normal by beginning of May, but the buyers are still not getting enough shipments.
Japan purchases over 60 percent of its rubber imports from Thailand.
Because the signs of short production, rubber stocks in Japan have decreased to the lowest level in forty years. According to the he Rubber Trade Association of Japan, Prior to June of 2005, the lowest the stock had been was back in 1962. Because of the high costs of rubber and the decrease in supply, manufacturers are considering shifting to natural rubber from expensive synthetic rubber.
High oil costs have also driven up rubber costs.
Because of the low supplies of rubber, companies are forced to increase the price. The demand has not risen because the need for rubber has not. By increasing the price of rubber, companies can try to make up for lost revenues. The rubber companies are also considering switching from highly priced synthetic rubber to natural rubber because of the cost difference. Natural rubber is much cheaper than synthetic rubber.
Companies, who choose to make the switch, may want to consider the cost/benefit approach. For example, natural rubber is cheaper to produce but may not be as good as synthetic. The natural rubber make not be as high of quality as the synthetic rubber and therefore isn’t as durable. Natural rubber may be easier to sell to the consumer because the price will be cheaper and the product will be easier to mass-produce.
Considering the cost/benefit of switching rubber could be explained discussing a
tire company. For example, suppose Goodyear had an extremely good and reliable tire made from synthetic rubber.
Because costs are high, Goodyear decides to save money by switching to using natural rubber. The new tire may not hold up as well as the old and consumers begin to get into accidents. Now somebody may choose to sue Goodyear because of poor quality and because of an accident he or she may have gotten into. It may have been more cost effective to continue with the synthetic rubber and waited out the slow production period. The company may face larger expenses with a lawsuit than those of continuing with synthetic rubber.
Supply, Price and Demand, (Milligan, S.
, Coulton, C., York, P., & Register, R., 1996); New York.
Report from Performance Benchmark Report, Journal of Modern Business, June 2003. pps.
The Tokyo Commodity Exchange. Retrieved from http://www.tocom.or.jp/ July 06, 2005.