Natural rubber shortage to widen in next 5-7 years.

Speakers at the World Rubber Summit, held last April in Kuala Lumpur, Malaysia, said the worldwide tightness in the natural rubber supply will only intensify in the next five to seven years, as demand will increasingly outstrip supply.

An official from the International Rubber Study Group (IRSG), which sets statistical benchmarks for the industry, said the shortage will rise to 820,000 tons by 2010, from an expected deficit of 250,000 tons in 2006.

Senior Statistician Darren Cooper said the price of natural rubber has risen 54% in the past year, fueled by strong demand for tires in emerging economies, robust gross domestic product growth worldwide and speculation in commodities futures markets. However, IRSG officials declined to forecast what impact the shortage would have on prices.

Several months ago, the IRSG received requests from rubber associations and governments in Europe and the U.S. to not make price forecasts, on concerns that price forecasts were exciting markets too much, IRSG Secretary General Hidde Smit reported to Dow Jones Newswires.

Years of low prices during the 1990s led to a lack of replanting by smallholders, while high prices in the past two years have had the same effect, as farmers tried to maximize their returns while prices were high.

As a result, the proportion of trees in their peak producing years will fall in the next five to seven years, and natural rubber supply during this period will increasingly fall short of demand, according to IRSG forecasts.

Since rubber trees take seven years to mature, new plantings of higher-yielding varieties underway in India and Indonesia can only be tapped from 2012.

In India, a high proportion of aging trees will bring about a decline in its natural rubber output until 2012, said Sajen Peter, chairman of India's Rubber Board.

"You will have a marginal decline in place of marginal growth. So in no circumstances can there be increased growth," Peter reported.

The board did not have an estimate on how much production would decline by 2012, but forecasts an output of 831,000 tons in the 2006-2007 Indian financial year ending in March, a growth of 3.5%.

With the expected worldwide shortage of natural rubber, rubber consumers will have to find means to bridge the gap, and how they bridge the gap will cast a shadow over the future, it was reported. "There is this number of years where the gap will increase and it will become very significant," the IRSG's Smit noted.

"The gap will be bridged by the consumption. But will there be switching, and if so, will there be a reversal? We don't know yet. The technological developments in the coming five to seven years are very important for the future," according to Smit. Smit said the perception that it takes much longer to increase natural rubber supply than synthetic rubber is not necessarily accurate. "It's easy to expand the factory. But if you start from scratch, it depends on the city," he said.

In Europe and the U.S., startup can take four years due to environmental requirements, but in China it is said to be a lot easier. So, although consumers will have to use more synthetic rubber, a wide scale substitution with synthetic rubber may not occur, it has been reported.

"Four years is not a lot shorter than a quick-producing rubber tree," Smit said. Nevertheless, Smit said the gap will reduce natural rubber's share in total rubber consumption to 37% by 2020, from 42% today.

If the world's natural rubber production matches demand by 2012, as forecast, Smit said there was unlikely to be a collapse in prices. Indeed, several speakers emphasized the importance of increasing production over prices.