Rubber industry is one of those industries that are tremendously impacted due to breakout of COVID-19. Rubber is mainly cultivated in two forms: natural and synthetic, where natural accounts for maximum 25% share of the rubber used in the industry. Natural rubber is mainly produced in Malaysia, Indonesia, and Thailand. Synthetic rubber is used as raw materials for almost all the rubber products that are used in our daily lives.
The worldwide consumption of rubber has shown a remarkable increase since decades. During 1993-2003, the growth was recorded somewhere between 3.5% to 4%, which has increased by more than 5% by 2018. But as the rubber industry is interconnected with many other industries such as FMCG, electronics, transportation and many others, the dip in the production and manufacturing of rubber based products has hit these industries as well. Additionally, the downfall of demand from the end-user industries has also led to decline in growth of rubber consumption in 2019 and the effects are more clearly visible in 2020.
As the non-tire application of rubber account for more than 50% of the share, a slowdown in demand from those applications has hit the rubber market severely. Also, the decline in imports by top two consumers of natural rubber is also a reason for severe impact of COVID-19 on rubber industry.
Though the outbreak of coronavirus has impacted the rubber industry in many ways, it has also brought several opportunities for the rubber manufacturers. At one side, the demand for natural and synthetic rubber has declined, the production has also declined with more than 5%, many production sites are running at 50% capacity and many end-user industries are struggling to receive their raw material (natural and synthetic rubber), on the other hand rubber associations are using it as an opportunity to curb the imports from China and increase their reliance on domestic industry.
As per the Automotive Tyre Manufacturers Association (ATMA), restrictions on import of rubber tyres from China will pave the way for increased domestic production and will also increase the amount of exports along with job creation multifold. ATMA has also revealed that almost 40% of Truck and Bus Radial (TBR) tyres and passenger car radial (PCR) tyres and 75% of tractors tyres in India are imported from China.
To control the situation, the government of India has taken a tough call to impose curbs on imports of certain new pneumatic tyres used in motor cars, busses, lorries and motorcycles to promote domestic manufacturing.
The demand of automobiles has gone down drastically which has resulted in lower demand of auto parts as well. Tyres and other rubber based components are among those. India which is among the top manufacturers of tyres have noticed depriving demand and thus, has to cut down the manufacturing massively. In the past few months, automobile manufacturing in India has come down to 13% with 20,736,410 units in April - December period of 2019 - 2020 financial years from 23,853,770 units in the same period 2018 - 2019. In the financial year 2019-2020, the decline in manufacturing of important tyres categories such as truck and tractors is nearly 7%. To cover the losses to some extent, manufacturers replied upon aftermarket business and also overseas market but that was on the difficult side as mostly all the countries are suffering with this pandemic.
The data presented by ATMA clearly shows that the tyre manufacturing has faced a hit during the end of 2019. As per ATMA, during April - December 2018, the total tyre manufacturing in India was around 14.63 crore which declined to 13.65 during April - December period of 2019. This decline has definitely increased in the initial months of 2020. With the uncertain infrastructure activities, the decline in truck and buses tyre volumes was from 1.58 crore in 2018 - 2019 to 1.37 crore in 2019 - 2020. Two-wheeler demand slipped from 5.47 crore units to 5.11 units. The data is only for 9 months and not for the entire fiscal year. As the impact of COVID-19 was at peak from January 2020, this rate would be much higher.
In an interview, Mr. K Srikumar, the co-head for Corporate Ratings, ICRA Ltd. has clearly notified that in the tyre sector any change in production is due to change in demand. Production and demand both largely coincide with each other. Any impact on one has direct impact on other. He has also mentioned that a large amount of tyre demand occurs from motorcycle or two-wheeler segment. So if this segment faces any downfall in the demand, it will create crisis for the overall tyre market in India. He has also mentioned that trucks which are mostly used to transport goods from one place to other are standing ideal due to lack of economic activities. The rigorous movement of trucks resulted in high replacement rate. But as they are not functioning now, the replacement cycle has extended and thereby, has also declined the demand for tyre replacement. Thus, no new demand either for fresh tyre or replacement tyre is emerging which has pushed the manufacturers to cut down the production.
Mr. K Srikumar has expressed his views, “There can be opportunities for Indian tyre makers in geographies as the U.S. which are largely dominated by Chinese tyres and brands.”
Other than the tyre industry, rubber is used in thousands of other products. A majority of rubber demand arises from non-tyre products such as footwear, belts and hoses, latex foam, cables and wires, battery boxes, rubber grommets, angle extrusions, home mats, covers, cases, and many more. Being shock proof, rubber is one of the in-demand products especially in electronics and consumer goods industry.
The major industries where rubber is an essential raw material are:
The hit of coronavirus has impacted all the above industries which have resulted in the demand and consumption of rubber globally.
As per the president and CEO of the Footwear Distributors & Retailers of America, Matt Priest, the U.S. footwear imports from China dropped drastically in January 2020 and it had been the biggest dip in last 10 years. Also, in the last 4 years, it has encountered the worst year-on-year decline of 15.7%. According to the industry organization, 70% of the U.S. rubber footwear comes from China and due to the outbreak of COVID-19, this sector faces heavy loss. Footwear companies such as Adidas and Puma are also experiencing major impact due to the coronavirus headwinds. Most of the retail stores have been closed in the virus-affected countries. They have lost sales of USD 50 million to USD 60 million due to the coronavirus. Other luxury brands are also experiencing serious blows to their sales.
In the electronic industry, some of the companies are facing hit while others are in booming stage as well. Those companies that are into the manufacturing of medical devices have registered high growth which has resulted in high demand of rubber required for medical component manufacturing. In the electronics industry, China has been one of the major suppliers not only for India but also for other big countries such as the U.S. The outbreak of coronavirus has pushed down the sales of top electronic companies and smart phone makers especially to those for whom India has been the major customer. With regard to the smartphones industry, only about 10 - 12% of the components are sourced locally in India and the remaining are still dependent on countries outside India, with China being a key supplier. Any delay and production crunch in China has resulted in delayed production in India and other countries. As rubber is an important part of electronics industry, the dip in demand of electronics has impacted the demand for rubber.
The supply chain for rubber has interrupted around the globe due to restrictions on transportation, lack of working staff and other restrictions by government. The shutting of factories and production in China has created havoc in the supply chain, which has led to a sharp increase in the prices of various rubber items. Also, the less demand of products from various industries has forced the manufacturers to cut down their production capacities. This has also affected the price of the rubber as raw materials in the global market.
To maintain the supplies, many big players of the market have learnt a lesson to diversify their supplies. Currently, the rubber industry is dominated by few suppliers only. But as those suppliers are no longer capable to supply rubber in the required quantity, the end-users are looking out for other suppliers. And this has also presented the industry with new opportunities. Undoubtedly, the supply chain has disrupted badly because rubber is used mainly as a raw material for various end-products as compared to a finished product. Thus, the ongoing lockdown in many countries resulted in transportation issues of this raw material.
Despite a slowdown in demand and crunch in supply, the price change in rubber market has not changed drastically. The price of sheet rubber was around USD 2 per kg in February and remained the same till June. As per the former president of Indian Rubber Dealers Federation, Pius Scaria, "Many rubber growers were not tapping during January and February as they were yet to get arrears of state incentive scheme. Besides, the hot weather too affected productivity." He also added,” The coronavirus in China seems to have affected the demand for sheet rubber. We were finding it difficult to market even the latex to North Eastern states because of problems there.”
However, low availability did not resulted in price rise as demand was weak from the tyre industry, which is struggling due to overall decline in sales of automobiles, and the coronavirus outbreak in China which has led to temporary shutdown of factories in its manufacturing hubs. RB Premadasa, the Secretary General of Association of Natural Rubber Producing Countries (ANRPC) has said in an interview, “a (price) trend reversal can be expected only by the turn of the first quarter.”
Rubber industry is closely attached with many other industries especially automobile and footwear industry. Any impact in these industries has direct implication over rubber industry. As the demand of rubber has gone down in these industries, many manufacturers are struggling to maintain their profits in the global market. Some are even finding it difficult to achieve breakeven point. Coronavirus has become a new normal for rubber industry and people in there are learning to stay with it. Some of the key points where manufacturers are focusing now is improving the supply-chain by dividing their supplies among first, second and third- tier suppliers. Rather than depending on one single supplier, they are now focusing on multiple supply-chains for their raw material demand. Other focusing area is risk associated with new tools and technologies. As many of the players have to manage their roles from their homes due to lockdown prevailing in the country, adopting new tools and techniques can attract huge costs and risk. To closely monitor those risks and costs is essential. Thus, it can be concluded that impact of coronavirus on rubber industry is moderate as for few products it is deep dip in the demand and at the same time for few products the market has boomed up drastically. Some are expecting it to be a short term impact while others are expecting it to be long term damage.