SR prices

The Rubber Economist Ltd

Synthetic rubber prices

Structure of the SR industry

Since synthetic rubbers are derived generally from petrochemical feedstocks and the tyre industry is their main consumer, it is not surprising that rubber is mainly produced by petrochemical firms, e.g. Shell and Exxon, who are involved with forward integration, and by tyre manufacturers, e.g. Goodyear, Firestone and Michelin, who are involved with backward integration. The world chemical, petrochemical and tyre industries are dominated by less than 10 firms who together account for around 80% of SR capacity. There are also between one and two hundred companies producing small volumes of SR. This means that a large amount of SR, particularly in the USA, is consumed by its own producers and a substantial amount of SR is not marketed at all, i.e. this is a captive product. Therefore, it is difficult to estimate its cost as these integrated companies have to charge their rubber to their own plants. To calculate costs properly, a range of possible alternative uses including monomers, fuels, production of other chemicals, etc has to be evaluated.

Some characteristics of oligopolistic firms are evident in the SR industry. These large firms generally produce at the minimum attainable unit cost and spend heavily on product differentiation, quality and advertising, i.e. non-price competition. Research and development is another important aspect of oligopolistic firms and also of the SR industry. The emphasis on research within the latter is reflected in the many advances throughout its history including the creation of new types of rubbers, refinement of production technologies and regular improvements in product quality.

Another characteristic of the industry is that its unit cost of production can be reduced by increasing the size of the plant, i.e. economies of scale. The reasons lie in specialization, division of labour and technological factors. However, the economies of scale are only in capital and labour inputs and not raw materials.

Definition of SR prices

It is difficult to define prices in such highly integrated firms. The firms practice so called ‘administrative prices’, which sometimes result in temporarily low profits. The price does not necessarily reflect supply/demand in the short-run. Furthermore, because the companies control their own products, i.e. have regulated supply, SR prices tend to be rather stable. For non-captive SR, suppliers quote a price to consumers depending on market conditions usually on a quarterly basis and a price will be agreed. These prices are not available to the public and are confidential between producers and large consumers. This is made possible because there are few firms and large consumers involved. This secrecy also allows them to apply price discrimination.

List and contract prices are the only ones published and they can be different from actual prices paid. Using unit export values sometimes may be found to be a more reliable indicator of actual prices. For example, the graph below shows the export values of three solid forms of SR exporting from the USA, i.e. styrene butadiene rubber (SBR), polybutadiene rubber (BR) and polyisoprene rubber (IR) and their latex forms, i.e. SBR, polychloroprene rubber (CR) and nitrile rubber (NBR). In 2007, about 50% of SR export volumes from the USA were either SBR or BR and these two types show the sharpest increases in export volumes of all the different types of SR.

US’s SR export values, 2000-07

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