The consumption of rubber (all types) is estimated to touch or exceed 5,300,000 tonnes, registering a 10% increase this year. Indications are that the trend is unlikely to change next year.

The main reasons are obvious – the rapid growth of the national economy, leading to improvement in the standard of living of the populace. In fact, the GDP per head has touched $1,400 and is projected to scale up to $1,900.

If one looks at specifics, more people have moved into cities and automobiles have become an important consumer item of individual families. The automobile production of China is approaching six million and is set to increase sequentially next year, leading to a consistently higher demand in rubber goods like tyres.

NR Prices a Cause of Worry
The unabated surge in NR prices and uncertainty over a possible reduction in NR import tariff are all factors that are causes of worry to China’s rubber industry. Meanwhile, the dollar exchange rate is growing steadily. If the rate goes up sequentially for some time, the international rubber market price in dollar terms will drop. At the same time, the upward trend in dollar exchange rate will lead to higher valuation of yuan and accordingly bring down the import cost of China.

The general feeling is that there is every chance of the oil prices falling to less than 35 dollars per barrel. If this happens, it will make SR cheaper. But that, of course, is for the future.

Steady Increase in Demand
According to official estimates, the requirement of tyres alone will reach 300 million units, a 30% growth from the 2005 figures. Tyre exports from the country rose by 17% during January-September this year as compared to the same period last year.

Meanwhile, the country’s rubber output increased only marginally in sharp contrast to the upward trend in consumption and demand. The total rubber    output is estimated to reach or exceed 2,300,000 tonnes, an increase of 5%. Of this, SR constitutes more than 1,700,000 tonnes. If the trend continues, the country’s rubber output, especially NR, is likely to weaken decisively next year.

The Carbon Black Challenge
Carbon black is perhaps the only rubber-related industry in China which has managed to strike a perfect balance between domestic demand and supply. China’s carbon black production had vaulted to No 2 in the world way back in 2002. The country has also made remarkable strides in carbon black technology, machinery and varieties.

In 2005, the Chinese carbon black production and demand were a perfect balance of 1,545 million tonnes each, which is 12% and 9.96%, respectively, higher than the previous year.

In the case of exports and imports also, the trend is towards striking a perfect balance and registering a rapid growth. In 2005, the Chinese carbon black import and export were 120,000 tonnes, each representing 5.2% and 34.8 growth, respectively, over the previous year, according to the carbon black division of the China Rubber Industry Association (CRIA).

It is forecast that carbon black demand of the country is to grow from 1,750,000 tonnes in 2006 to 2,250,000 tonnes in 2010, output from 1,770,000 tonnes to 2,350,000 tonnes and production capacity from 2,480,000 tonnes to 2,600,000 tonnes. Since demand and consumption of carbon black are on the ascent especially with the growing preference of radial tyres, improving the quality of this essential raw material is going to be a major challenge. Moreover, the competition is going to be severe as the industry is open for liberal multinational entry.

Competition Heats Up in SR Sector
The total production capacity of styrene butadiene rubber (SBR) in China stands at 405,000 tonnes a year. The capacity of emulsion rubber is 360,000 tonnes and that of solution SBR is 45,000 tonnes. The production capacity of SBR latex, which is the widely used form of SR latex, is 55,000 tonnes.

The demand for SBR is certain to increase rapidly from 550,000 tonnes in 2005 to 770,000 tonnes in 2010, according to industry estimates. In respect of consumption of SBR, tyres account for 35%, rubber hoses and belts 18%, shoemaking industry 16% and others 11%. The domestic production caters to only 70% of the demand, and therefore, the rest is being met by imports, mainly from Russia (30%) and Korea (22%).

Liberal imports of SBR mainly by tyre manufacturers and the influx of foreign capital in processing and manufacturing sector have accelerated market competition wherein the domestic industry appears to be waging a losing battle.

Bleak NR Scenario
Forecasts are that China is heading for a long-standing, severe shortage of NR. The country’s NR production touched 573,300 tonnes in 2004. The domestic production is certain to take a drastic dip next year due to last year’s devastating typhoon and drought conditions.

The country, being the world’s top NR consumer and the consumption growing steadily, the domestic short supply is going to be acute in the coming years. Presently, domestic supply caters to only one-third of the total domestic demand. Quite naturally, the country is today the largest importer of NR. In 2004, the country imported 1.28 million tonnes of NR. As the country’s NR demand is met mainly by imports, supply fluctuations in global NR will be a major challenge for China’s rubber industry.

Machinery Units Make It Big
It is again a story of stable growth and great profits. It is estimated that the total sales of China’s rubber machinery in 2005 was RMB 6.5 billion, an increase of 8.3%. According to statistics available from the China Chemical Industrial Equipment Association, 27 main manufacturers had sales worth RMB 4.21 billion, an increase of 11%. However, the increase was as much as 40% in the previous two years.

The total profit of the industry was over 100 million yuan, and five manufacturers earned a profit of over 10 million yuans in 2005.

Export of Chinese machinery also witnessed a significant growth. The exports touched $73 million, an increase of 20% over the previous year. It is going to be bullish in the coming years also.

New Curbs to Ensure Competitiveness
Meanwhile, the National Development and Reform Commission, People’s Bank of China and China Banking Regulatory Commission have come out with certain prohibitive and restrictive measures in respect of six rubber industry-related items.

In the prohibitive list are the production systems of the bias tyre and the cotton-cord-fabric reinforced tyre having a production capacity of 500,000 units a year or less, the production systems of dry granulating carbon black having a production capacity of 10,000 tonnes a year or less and the production systems of beaded bicycle tyres. In the restrictive class are the items of middleweight tyre (handcart tyre), bias automobile tyre and rubber plug for medical uses.