In a previous article posted here on FSO, I discussed the concept that China will significantly drive the demand for a wide variety of commodities in the years to come; in particular, I focused on industrial mineral commodities and made the point that for mineral commodities where China is a net importer, those mineral commodities represent the best bets in industrial mineral commodities to ride China’s growth. Here is a recap of that list below, showing net importer mineral commodities on the left hand side, and showing net exporter mineral commodities on the right hand side:

Another key industrial commodity for China, in addition to the above minerals, is rubber. As one of the world’s largest net importers of rubber, China is now the world’s largest consumer of rubber. It is forecast that China this year will have to import 900,000 tons of natural rubber, compared to 400,000 tons needed last year, a 125% increase. Key exporters of rubber to China include: Thailand, Malaysia, Indonesia, and Vietnam; rubber exporters from these countries are likely to benefit in China’s overall growth.

As with a variety of manufactured products, China is basically taking in raw rubber as imports and transforming the raw material into finished rubber products for exports - especially shoes and tires. China is now the world’s largest producer of shoes and a major exporter of tires.

Shoes

In China as of 2001 according to the China Markets Yearbook 2003, there are several hundred rubber shoe manufacturing businesses with annual sales of over 5 million RMB (1 USD = 8.28 RMB) with a total revenues of over 11 billion RMB. Large players include the Qingdao-based Double Star Group and Guangzhou Panyu Daxing.

Tires

In total, China has about 4000 rubber-processing businesses, of which 300 are tire producers, according to the China Chemical Reporter in 2002. In this space, in 2001 there were 218 businesses with annual sales over 5 million RMB with a total revenue of over 39 billion RMB according to the China Markets Yearbook 2003. Large players include Grandour Tire and Hangzhou Zhongce Rubber.

It is interesting to note that radial tires are expected to be the fastest growing area of the tire industry. On a trip to China last year, a senior manager of Michelin was amazed that radial tires were the fastest growing despite being 3 times more costly than standard tires; the reason was explained by a local truck tire dealer – Chinese haulers routinely overload their trucks, typically putting 20 tons on trucks designed and built to carry only 5 tons; after a few trips, the standard tires usually burst, but the more robust radial tires can take the load.

Supply and Demand

According to the China Economic Information Network, the price of natural rubber in China increased last year, up by about 50% for a similar period in 2001. There could be a rapidly growing gap between demand and supply, due to the rapid development of the automobile industry coupled with a recent reduction of output in Thailand, Indonesia, and Malaysia, the largest producers of natural rubber.

In sum, China’s massive growth in the manufacturing sector includes rubber-based industries, especially those of shoes and tires. To fuel this growth, massive outputs need massive inputs; these inputs are lacking in sufficient quantities in China. China is the world’s largest consumer of rubber and will continue in the years to come to import vast quantities of natural rubber, petrochemicals, and synthetic rubbers necessary to fuel its massive growth. Industrial commodities necessary for the rubber industry, and resource-rich countries and associated exporting businesses exporting rubber to China will benefit greatly in this growth.

© 2003 Chico
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