Rubber Demand in China to Contract 5% as Truck Sales Tumble

Natural-rubber consumption in China, the world’s largest user, will probably drop this year as slumping truck sales and slowing economic growth cut demand for heavy-duty tires, according to the country’s biggest maker.

Usage may contract as much as 5 percent, said Shen Jinrong, chairman of Hangzhou Zhongce Rubber Co. Shen’s outlook compares with a forecast in June from Chris Pardey, chief executive at Singapore-based trading company RCMA Commodities Asia Group, for a 2.3 percent drop in demand to 3.69 million metric tons.

Lower demand may extend rubber’s 13 percent drop in Tokyo this year as prices dropped for a fifth month in July. China’s economy expanded in the second quarter at the slowest pace in three years as Europe’s debt crisis hurt exports. Komatsu Ltd. (6301), the world’s second-biggest maker of dump trucks, said this month that demand in China wouldn’t recover this year.

“The country is going through a so-called structural adjustment, during which passenger-car sales remain robust, while truck sales moderate,” Shen said in an interview on July 26. That’s “a major factor affecting rubber consumption since the truck sector is the heaviest user,” he said.

The January-delivery contract dropped 1.1 percent to settle at 229.8 yen a kilogram ($2,937 a ton) on the Tokyo Commodity Exchange today. This year’s decline means it’s underperformed the Standard & Poor’s GSCI Spot Index of 24 raw materials including oil and copper, which is 0.2 percent lower.

Truck Tires

“It’s the sales of Truck Bus Radial tires, or TBRs --particularly those for earthmovers or heavy-duty trucks used in mining and steel making -- that suffered the most,” Shen said. In the second half, natural-rubber “prices are likely to stabilize from here or slide a bit further,” he said.

China’s growth slowed to 7.6 percent in the three months ended June, the sixth deceleration, as Europe’s crisis sapped exports and a crackdown on property speculation curbed domestic demand. Sales of trucks in China fell 7 percent in the first six months as passenger-vehicle sales grew 7.1 percent, according to data from the China Association of Automobile Manufacturers.

“We might see the whole tire industry in China still achieve low single-digit growth in terms of sales this year,”said Shen, who forecast in March that natural-rubber demand in China may be flat in 2012 on poor commercial-vehicle demand.

Komatsu Chairman Masahiro Sakane said in a July 19 interview that “I don’t think China will recover this year.”The company’s sales of excavators in China fell more than half in the three months to June 30 from a year earlier, President Kunio Noji said in an interview earlier this month.

Lower Prices

A further 20 percent drop in prices may spur tire makers to use more natural rubber in products, cutting the share of synthetic rubber, Shen said. Lower prices may also prompt Southeast Asian growers to tap less rubber or accelerate replanting, he said.

Thailand, Malaysia and Indonesia are the three largest natural-rubber producers, accounting for about 67 percent of global production, according to RCMA data. World output may expand 3.2 percent to 11.3 million tons this year, according to the International Rubber Study Group.

A tire for a medium-to-heavy commercial vehicle uses as much as 18 kilograms (40 pounds) of natural rubber on average, compared with less than 1 kilogram for a typical passenger-car tire, according to CLSA Asia-Pacific Markets in Singapore.

China accounts for 33 percent of global demand and tires represent 70 percent of natural-rubber consumption in the country, according to Sri Trang (Shanghai) Ltd., a unit of Thailand’s biggest publicly listed producer.