Impact of crude oil price movements on NR prices and forecasts for

2013 and beyond

Global Rubber Conference 2013 Palembang, Indonesia

1-3 October 2013

Dr. Hidde Smit

This presentation

Six parts:

• Oil prices and rubber prices

• Analysis and perspectives for NR production potential

• Aggregate rubber consumption

• Natural and synthetic rubber consumption, production and price forecasts

• Assessment of earlier forecasts: May 2010 (Malaysia) and GRC-2012

• Alternative scenarios

Part 1.

Oil prices and rubber prices

Oil and natural rubber prices

0

100

200

300

400

500

600

700

1990 1995 2000 2005 2010

Ind

ice

s, b

ase

ye

ar 2

000

Oil Natural rubber

Oil and Butadiene prices

0

1

2

3

4

5

6

1990 1995 2000 2005 2010

Ind

ice

s, b

ase

ye

ar 2

00

0

Oil Butadiene

Butadiene and Styrene-Butadiene Rubber (SBR) prices

0

1

2

3

4

5

6

1990 1995 2000 2005 2010

Ind

ice

s, b

ase

ye

ar 2

00

0

Butadiene SBR

Modelling prices of SBR using prices of

butadiene and NR (model estimation

sample 1996-2010)

1.00

1.50

2.00

2.50

3.00

3.50

1996 1998 2000 2002 2004 2006 2008 2010 2012

US$

/kg

data model forecast

Part 2. Analysis and perspectives for NR production potential

• A general framework for natural rubber supply analysis is presented

• The trend in production will be called normal production

• Production exceeds normal production at high prices

• And vice versa

Normal production levels are analysed using the vintage approach

The vintage approach derives and includes per country

• The composition of the total area for natural rubber according to the year of planting (the vintages)

• The average yield profile for a hectare of rubber during its life

• Technical progress in quality of clones affecting yield profiles of hectares planted in various years

New planting, data/(re-)estimates (‘000 ha)

2000 2005 2006 2007 2008 2009 2010 2011 2012

Thailand 19 123 110 161 221 90 100 79 50

Indonesia 5 47 97 98 42 31 53 47 56

Malaysia 0 0 0 0 6 0 3 8 17

India 7 17 22 23 30 26 26 24 25

Vietnam 18 30 41 35 77 55 75 88 79

China 1 38 28 107 66 48 59 60 51

Sri Lanka 0 1 2 2 3 3 1 3 3

Cambodia 4 6 10 13 27 31 27 32 38

Philippines 3 2 16 22 16 8 13 26 20

Myanmar 18 25 71 86 52 37 43 37 32

Laos 1 4 6 11 25 25 25 25 25

Source: Association of Natural Rubber Producing Countries, slightly adjusted, or estimated

Natural rubber planting, Thailand source data: country statistics, Association of Natural Rubber

Producing Countries, with adjustments and own estimates

0

50

100

150

200

250

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

'00

0 h

a

new planting replanting

Natural rubber area (‘000 ha) and production (‘000 tonnes), Thailand

0

1000

2000

3000

4000

5000

6000

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

total area mature area normal production production

Natural rubber planting, 11 Asian countries source data: country statistics, Association of Natural Rubber

Producing Countries, with adjustments and own estimates

0

100

200

300

400

500

600

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

'00

0 h

a

new planting replanting

Natural rubber area (‘000 ha) and production (‘000 tonnes), 11 Asian countries

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

total area mature area normal production production

Global NR normal production to reach 18.4 million t. by 2025; actual production may be higher or lower depending on prices

0

2

4

6

8

10

12

14

16

18

20

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

ne

s

data (IRSG) normal production

Growth in normal production of NR

0

1

2

3

4

5

6

7

8

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

%

Part 3. Aggregate rubber consumption

Rubber consumption 2022 tyres 23.2, GRG 15.2, total 38.3, IRSG: World Rubber Industry Outlook Jun/2013

0

5

10

15

20

25

30

35

40

45

1995 2000 2005 2010 2015 2020

mill

ion

ton

nes

Tyres, data forecastsGRG, data forecastsTotal, data forecasts

Growth of total rubber usage

IRSG: World Rubber Industry Outlook Jun/2013

-8-6-4-202468

1012141618

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

%

Part 4.

Natural and synthetic rubber consumption, production and price

forecasts

Future growth in total rubber consumption (IRSG) and normal production of NR

-8-6-4-202468

1012141618

1995 2000 2005 2010 2015 2020 2025

%

NR normal production growth Total rubber consumption growth

Determining factors driving the share of NR

In broad terms:

Technology • Broad groups of the end-uses: PC, LCV, M/H CV tyres

• The type of tyre within the broad group

• The manufacturer and the location of the factory

Price ratio of NR over SR

Developments in NR and SR prices

NR prices: market equilibrium between supply and demand

SR prices: based on cost developments with

a little influence of the market

The price of oil, forecasts based on US-EIA

0

20

40

60

80

100

120

140

1995 2000 2005 2010 2015 2020 2025

US$

/bar

rel

data forecasts

The price of Butadiene; supply constraints may push the price higher

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1995 2000 2005 2010 2015 2020

US$

/kg

data forecasts

SBR prices, increasing to $3.50 in 2025; NR prices declining to $1.95 and recovering to $3.55

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1995 2000 2005 2010 2015 2020 2025

US$

/kg

SBR data SBR forecasts NR data NR forecasts

NR share in consumption, increasing to maximum 45%

36

37

38

39

40

41

42

43

44

45

46

1995 2000 2005 2010 2015 2020 2025

%

data 43.5 forecast

Natural rubber consumption

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

N. America Europe Japan China

India Other Asia R.O W.

Natural rubber consumption

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

Korea Indonesia Malaysia Thailand

Natural rubber consumption

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

Taiwan, China Philippines Vietnam Other Asia

World rubber consumption 2025: NR 19.1, SR 23.4, total 42.5

0

5

10

15

20

25

30

35

40

45

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

NR forecasts SR forecasts total forecasts

Natural rubber production

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

Thailand Indonesia

Natural rubber production

0.0

0.5

1.0

1.5

2.0

2.5

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

Malaysia India Vietnam China Other Asia

Estimated tapping intensity (production / normal production)

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Part 5.

Assessment of earlier forecasts: May 2010 (Vintage model training workshop Malaysia) and GRC-2012

Growth in normal production of NR

0

2

4

6

8

2000 2005 2010 2015 2020 2025

%

May-10 GRC 2012 GRC 2013

Growth in total rubber consumption

-8-6-4-202468

1012141618

2000 2005 2010 2015 2020

%

IRSG Dec-2009 GRC 2012 (IRSG June 2012) IRSG Jun-2013

Natural rubber prices

0

1

2

3

4

5

2000 2005 2010 2015 2020 2025

US$

/kg

May-10 GRC 2012 GRC 2013

Part 6: Alternative scenarios

Oil prices • The effects of two alternative scenarios are presented

Consumption • The current set of consumption forecasts may be on the high

side for 2014-2016; an alternative scenario is presented

Lower and higher scenarios for oil prices

The price of oil, forecasts based on US-EIA

0

20

40

60

80

100

120

140

160

180

1995 2000 2005 2010 2015 2020 2025

US$

/ba

rre

l

oil price base low price scenario high price scenario

SBR prices

0

1

1

2

2

3

3

4

4

5

2000 2005 2010 2015 2020 2025

US$

/kg

SBR price baselow oil price scenario high oil price scenario

NR prices

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2000 2005 2010 2015 2020 2025

US$

/kg

NR price base

low oil price scenario high oil price scenario

Lower scenario for growth in total rubber consumption

Slightly lower growth in total rubber consumption during 2014-2016

-8-6-4-202468

1012141618

2000 2005 2010 2015 2020

%

base scenario lower scenario

World rubber consumption

0

5

10

15

20

25

30

35

40

45

1995 2000 2005 2010 2015 2020 2025

mill

ion

ton

nes

base scenario lower scenario

NR prices

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2000 2005 2010 2015 2020 2025

US$

/kg

base scenario lower scenario

Thank you!