Record consumption for rubber in 1995.

The recovery in the world elastomer industry picked up speed in 1995, pushing total elastomer consumption to a record level. 1995's growth rate was the sharpest since 1984 and significantly higher than the 2.4% achieved in the previous year, according to the International Rubber Study Group's annual industry report. As NR grew slightly faster than SR, the percentage of the world SR consumption is estimated to have fallen for the ninth straight year. The sharpest growth rates in the world last year, with the exception of the central and eastern European countries which rose from relatively low levels, were in Asia. World NR production is estimated to have increased, but this was due solely to spectacular increases recorded by the top producers in the first half of the year. World SR production is estimated to have outpaced SR consumption and NR production last year. As expected, with a recovery in domestic demand as well as good export markets, SR production in central and eastern Europe increased rapidly last year.

In 1995, natural rubber prices were far from stable despite the fact that they started and ended the year at a similar level. As a result of reaching a record level and remaining above the `ceiling' for most of the year, the annual average DMIP in 1995 was the highest since INRA's inception in 1980. In fact, the average RSSI London price in 1995 was the highest in nominal terms this century and the New York price was the highest with the exception of only three years, 1909, 1910 and 1911. Price differentials between rubber types and grades fluctuated widely during 1995. Futures trading increased sharply in 1995 on the Tokyo Commodity Exchange (TOCOM), Kobe Rubber Exchange (KRE) and Singapore Commodity Exchange (SICOM). Apart from futures market activity, other factors affecting NR price movements were currency movements, INRO, China, government intervention, weather and supply factors and the demand factor.

In contrast to 1994, last year saw feedstock prices decline. The decline was much sharper for styrene than for butadiene. Chinese buying also played an important role in feedstocks markets in 1995. SR prices were raised many times by the producers during 1995. The SBR large-volume contract list price is estimated to have risen by 27% in 1995 over the average level in 1994. To reflect demand/supply an index of SBR export values were used to compare with an NR price index and found that NR prices increased more sharply than SR prices in 1995.

Growth in the world and the industrialized economies in 1995 was slower than expected. The U.S. economy is estimated to have grown about 3%. U.S. car registrations declined last year, while commercial vehicle (CV) registrations, however, continued to rise before falling off slightly in the final quarter; this is reflected in vehicle production. U.S. tire prices were raised during the year because of higher costs of raw materials. In Europe, the strong economic recovery in 1994 lost momentum over the first half of 1995. The slowdown has turned out to be more pronounced than initially expected. After increasing sharply in 1994, car registrations in western Europe increased only marginally last year. CV registrations continued to show a sharp growth, led by truck sales which recovered in virtually all markets in western Europe. There was a sharp growth in tire demand, more for CVs than for cars, and reports of tire shortages in Europe. Western European tire manufacturers had to extend operations to a seven-day working week in response to increases in demand. Despite higher costs of production, all the major international tire companies reported improvements in their financial earnings. The recovery in central and eastern Europe continued in 1995. In general, countries which engaged in reforms early and decisively are gaining the most. In the Russian Federation, GDP fell by 4.0% in 1995, its lowest rate of decline since the collapse of the Soviet Union and tire production is expected to have fallen 6% last year.

In Japan, the economy suffered from the renewed strong appreciation of the yen in early 1995 and domestic demand failed to provide appreciable stimuli during the summer. The stalling of the recovery prompted a fiscal stimulus package in the second half of the year. Car registrations have been increasing steadily since mid-1994 and rose in 1995 to the highest rate in five years. However, output of both cars and CVs declined. Tire output also improved as a result of increased tire exports, particularly to Southeast Asia. South Korean GDP grew and the car export boom increased overseas last year. China's economy in 1995 grew slightly slower than in the previous year, and after several years of expansion, production of vehicles grew much more slowly. The Indian economy is estimated to have increased and automobile manufacturers' sales rose quite sharply. The economies of ASEAN countries continued to grow, led by Malaysia, Thailand, Singapore and Indonesia.

The outlook for the world elastomer industry is slightly less rosy than at this time last year. A slowdown in the world economic recovery became more apparent towards the end of last year. Many experts express gloom on the economic outlook in industrialized countries, particularly in Europe. On the other hand, some economists believe that the U.S. economy is performing quite well and that the European economy should rebound this year. The world economy looks likely to have the benefit of steady, non-inflationary growth this year. Western Europe's new car market is predicted to grow by about 3% in 1996, an improvement over a marginal growth rate in 1995. In 1996, the central and eastern European countries are expected to show filter improvements. The Russian economy should see a positive growth for the whole year in 1996, ending the six-year slump. In Japan, the fiscal stimulus package, coupled with short-term interest rates close to zero and a sizeable depreciation of the yen are together expected to engineer a gradual recovery in' 1996. In addition, there should continue to be a rapid expansion in other Asian countries, without much overheating.

Therefore, the elastomer industry should continue to grow in 1996, at a more moderate but sustainable rate. It is possible that prices of rubber will not increase as sharply this year because of weaker demand and waning of consumer restocking, while supply responses may dampen any sharp price increases. However, 1996 might still be another volatile year for commodities if the activities of the hedge and commodity funds and speculative interests remain, but this is questionable.

Experts believe that overestimates of the growth of styrene demand and major capacity additions worldwide may lead to weaker prices and fierce. competition in the next four years. Prices could soften in 1996 and decline further thereafter. The butadiene price is expected to continue to weaken in the first quarter. However, for 1996 as a whole, the butadiene market looks to be tight.

The picture of the world elastomer industry may look quite different in the coming years, particularly in the Asia/ Pacific region, as the largest NR producing country prepares to become the first SR producing country in the ASEAN region. China is already in a significant position as far as rubber offtake is concerned. Its future position will be even more important in line with its rapidly expanding economy and planned increases in the vehicle sector.

The future of Japan as a major rubber consuming country is, however, questionable. The successful completion of various agreements such as GATT, NAFTA, APEC and AFTA gave further stimulus to a revitalized and competitive trading system. This will further strengthen the globalization process of the world rubber industry. Malaysia has structural problems with its rubber industry, replacing rubber trees with oil palm. Political problems afflict west Africa, but price increases in recent years have encouraged development of capacity elsewhere, improving supply prospects.

Many producing countries are embarking on expansion plans and programs to boost production, and privatization programs are also underway to attract further investment the report concludes.