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October 2011 Commodity news and trends
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Rubber prices, natural (produced from the rubber tree) and synthetic (produced from petroleum), have been pushed up in the commodity price boom.

The rise in the price of oil is increasing the costs of feedstocks used in the manufacture of synthetic rubber. The oil price rise is also pushing up the price of biodiesel produced from palm oil, important because palm trees are an important alternative to rubber trees for land use.

Natural and synthetic rubber are not complete substitutes, mostly because natural rubber is preferred for automobile and airplane tires. But the link between the two prices is very strong, and the worldwide natural/synthetic production breakdown is roughly 50-50.

Synthetic rubber can be produced anywhere in the world, but natural rubber requires the gold-plated tropical climate conditions, especially the complete absence of frost, which is found in only the equatorial areas of the world. World production today is concentrated in Southeast Asia, particularly Thailand, Indonesia, Malaysia and Sri Lanka.

The skill involved in the cultivation of the rubber tree and, most importantly, in tapping the rubber tree (cutting into the bark) without causing long-run damage to the tree has led to increasing concentration of production in small landholdings.

After tapping the rubber tree (around once every two days), the latex is coagulated, and then rolled to remove excess water, to produce the rubber sheets which are sold to downstream producers for further processing, such as vulcanisation.

The rubber tree takes around seven years from the seedling stage to begin its 25+ years of productive life. One consequence is an almost zero response of natural rubber production to price changes, but high price sensitivity for synthetic rubber.
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