The coronavirus pandemic has sent supply chains into a
tailspin. First it was toilet paper, then it was ketchup
packets, gnomes, semiconductors. Now, it's rubber.
Multiple factors are leading to a major rubber shortage around
the world
This could be getting a lot worse. Qe could be on the cusp
of a rubber apocalypse
To ensure uninterrupted supply of natural rubber from the few
regions of the world which grow itis a major concern of every
world power. Most of all, the United States.
The global natural rubber market was valued at nearly $40 billion
in 2020. But
Demand for rubber is really continuing to increase.
One analysis predicts the rubber market could be worth nearly
$68.5 billion by 2026. Rubber is a critical raw material. Just
think anytime you're going anywhere by car plane, or even
by foot. You're using rubber. But rubber is also used in your
personal protective equipment like gloves and masks like the
elastics that stretch behind your ears. Plus, it's used in
literal rubber bands. And then there are hair ties, underwear,
erasers, condoms and more. Rubber ducks though those are
plastic. It's used in more than 40,000 commercial products.
You could call it the shortage. Some people are referring to it
more as a supply chain disruption.
Rubber producers are working against all odds. Climate change
disease, both COVID and a destructive fungus. Not to
mention, the fight for shipping containers. So, let's break down
what exactly this all means for the rubber shortage.
Before the coronavirus struck, the rubber industry faced
challenges. But to start, here's how rubber is made. Well natural
rubber anyway, it's kind of like how you would tap a tree for
maple syrup. Certain trees can be tapped for liquid sap, also
known as latex. Latex is gathered from the trees by
making a cut in the bark collecting the runny sap in cups
By mid morning, the workers are ready to begin their collection
It's called the hevea brasiliensis, and as the name
suggests, is a tree that is originally of South America
Ammonia is added to keep the sap from solidifying. Then acid is
added in a process called coagulation to extract the
rubber. A few hours later, the mixture goes through rollers to
remove excess water. Then, layers of rubber are hung over
racks to dry for a couple of days before being folded into
bales for processing. There are synthetic rubbers
America's synthetic rubber problem nears a solution.
But sometimes it can't be swapped out for the real thing
because of natural rubber's particular properties. Take
airplane tires as an example, got to be 100% natural rubber,
and most natural rubber doesn't come from the U.S. not even
North America. In fact, most of the world's natural rubber 90%
of it comes from
Southeast Asia, Thailand, specifically the largest
producer
The U.S. imported $140 million worth of natural rubber in March
2021 alone. Most of that rubber comes from independent farmers
in Southeast Asia, also known as smallholders.
85% of the natural rubber that we have in the world today is
produced by smallholders. So, these are families that work on
lands that are usually one to two hectares in size. This means
that one to two soccer or football fields
Those families of farmers are at war with diseases destroying the
A fungus affecting rubber producing plants has destroyed
10% of global supply.
But pestalotiopsis and neofusicoccum ribis. The trees
are only like eight feet apart now and they're all clones. So
there's very little genetic diversity. So it's a bunch of
identical twins for miles on end. So of course, if one gets a
bad disease, they're all susceptible to it. There's no
immunity, it's a desperately sensitive system.
And farmers face the impacts of climate change on their
business.
Extreme weather events last year had a significant impact on that
loss in production. But you know, if you've got major
floods, you're gonna kill your trees, you know, if you've got
tsunamis and typhoons, you know, again, major, major issues on on
supply.
Farmers have to be strategic about planting their crops.
You have to plant a tree and that tree takes four to seven
years to mature before you can get rubber out of it. So, if
there's not enough careful planning and enough resources
that are put into replanting, then we see what we've seen in
the past year is that you have a cyclical nature in the
availability of rubber. So basically, the prices are low.
Right? What happens is that people don't plant because it
seems that there's no business case for rubber. At a certain
point, demand keeps increasing up to a point where prices start
picking up and people start planting rubber a lot, but that
rubber doesn't come into fruition until four to seven
years after that, and when comes into the market then you have a
slump in prices.
This causes rubber farmers to face unreliable income streams.
That makes it hard to afford resources to fight off those
diseases.
Rubber tappers are only being paid like $2 to $6 a day, you
know, that's not a living wage, but there was no money left to
improve the health of plants, you know, there's no money left
for fertilizers or for proper tree maintenance.
And then COVID-19 scrambles the supply chain even further.
Now, demand for rubber is spiking. Part of the reason? Car
tires.
Tires is by far the largest consumer of natural rubber. But
what really matters is how much are people using tires? You
know, with food deliveries and well, not just food but goods in
general. We are using tires, more and more.
Manufacturers have told CNBC that they haven't been affected
yet.
Tiremaker Goodyear are telling CNBC we are not currently
experiencing supply limitations.
I've got the semi thing already going, but how about rubber? We
got enough?
Yeah, you know, Jim, short answer is we do. We never have
had a problem of getting supply of that natural rubber. So it's,
you know, it's something that's always out there a lot of
speculation going on. I can never say never about something
that could happen to Southeast Asian rubber trees.
Yeah, we haven't been affected by this, obviously, very, very
difficult overall global supply chain disruption.
And now shipping containers are hard to come by.
We're hearing that rubber is increasingly hard to import for
some industries. So what's the problem here? Well, it's
multiple factors. A lack of shipping containers, bottleneck
caused by the Suez Canal, and a recent surge in demand from
end-users.
Supply chains are very much at capacity at the moment during
COVID. The sheer fact that because people are home and the
way that things are working, the shipment of goods has increased.
And since most rubber comes from Thailand 15,000 miles away, the
shipping delays have caused businesses to find alternative
routes.
Consumers who buy direct in Southeast Asia have been
utilizing air transport to bring natural rubber those 15,000
miles from Southeast Asia to the United States.
Plus, supply problems can be traced to processing plants,
which are also known as OEMs, original equipment
manufacturers. Some OEMs shut down due to COVID outbreaks.
Consumer element of the business, especially because of
the OEMs, of course shutting down significantly in 2020. But
that's also bouncing back quite well.
Now, industrial companies are thinking about rubber
innovation.
I think our goals in the mid- to long-term is to continue to
invest in technology also to put in parallel other other way from
you know, synthetic rubber or other ways of really coping with
this some potential disruption
Not just companies but the Biden administration too
He's very much into this critical material supply chain
security. It's really, it's really U.S. security. It's
homeland security
Af all critical and strategic material, rubber is the one
which presents the greatest threat to the safety of our
nation.
We don't have rubber, we have no security.
Besides security, the U.S. simply also has to meet demand.
Some scientists see opportunity here. Dr. Cornish at Ohio State
University is developing rubber from plants. She's still two to
three years away from getting this to market.
And the goal is to make the U.S. initially independent, you know,
so that they actually have our own natural rubber supply in the
States. And so we're not having to import it all from the other
side of the world all the time.
Cornish and her team, both at her startup and at Ohio State
are working on sustainable solutions to growing rubber in
the U.S. Turns out rubber is harvestable from dandelions.
You see the latex coming out of the roots there?
The system that I developed at university where you can grow
the dandelions hydroponically cut the roots off, grow them
back down, cut them off, grow them back down, cut them off.
You get a very highly productive system for rubber production.
But for the U.S. to be a real rubber player, it'll take a lot
of time, commitment, and cash.
Somebody has to come up with the money to build that vertical
farm. Those things are really expensive. It's like a billion
dollars for a 10-acre farm vertical farm with 12 layers.
There also needs to be processing plants. And Cornish
says it'll take a $40 million investment to make that first
processing plant. Until the rubber innovations hit the
market, the U.S., and the rest of the world for that matter,
will stay dependent on Southeast Asia for natural rubber.
The issue is who's gonna have to bear the cost of this and my
hope is that we are not going to see the farmers paying the cost
of this disruptions.
The industry has got to understand that prices are going
to go up but that for the health of the industry, they need to go
up and stay up.
We really put our efforts to ensure that the farmers that are
producing these commodities that we support these farmers in
their countries to be able to carry out this work in a
dignified way and to ensure that they can make a decent living
out of the work that they're doing producing these
commodities are so important for keeping our standards of living
in the countries where we can benefit from the wealth that we
have.