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Automakers struggling with factory shutdowns caused by the pandemic and global chip shortages are now facing another supply chain problem: a reduction in rubber supply.

Roaring shipping companies are disrupting the movement of natural rubber, which is a key material for tires and under-hood components. Due to China's inventory and devastating leaf disease causing global supply shortages, rubber prices are rising, and some US auto suppliers are scrambling to ensure shipments before the market is further squeezed.

As companies in almost every market are struggling to cope with shortages, perhaps no industry has been hit harder than cars. Many factories have stopped production due to the semiconductor crisis, causing tens of billions of dollars in revenue loss, and materials from seat foam to metal to plastic resin are becoming more and more difficult to find. The industry has long relied on just-in-time manufacturing to reduce costs, but now it finds that it has limited flexibility in responding to supply chain disruptions caused by the pandemic.

Just as demand rebounded and the Biden administration hit the US economy with $1.9 trillion in stimulus spending, rubber shortages may further disrupt car production. The rubber problem can be particularly tricky because it takes seven years for these trees to mature, so supply is unlikely to rebound quickly.

"It's like a paper towel in the early days of the Covid crisis," said Steve Waibo, head of the automotive business group at Conway MacKenzie, a consulting firm outside of Detroit. "If you can get some plastic or rubber, you will order more than you need because you don't know when you will get it next time."

Automakers including Ford Motor Company and Stellatis NV, formerly Fiat Chrysler, said they are monitoring the condition of the rubber but have not yet felt the impact. General Motors also stated that it is not worried about its rubber supply. France’s Michelin is one of the world’s largest tire manufacturers, and it is avoiding port congestion by using air freight directly from Asia.

But for suppliers that rely on US distribution, rubber is already a problem.

"I have warned everyone that I will bring the materials to me as soon as possible," said Gary Busch, the global procurement director of the Karlsta Group, which makes tires for off-road vehicles and agricultural vehicles.

The rubber industry is dominated by small farmers. As demand changes, price fluctuations or supply chain problems emerge, it is difficult for manufacturers to adjust quickly. According to Trafigura Group, a commodity trader, without new mine construction, the copper shortage could reach 10 million tons by 2030.

Thailand is the world’s largest producer and exporter of rubber. In the years before the pandemic, it has been battling continued low prices, causing farmers to plant more trees to make up for the decline in income-without giving They plant more power. During the pandemic, the supply of rubber gloves has tightened due to demand, and natural factors such as drought, floods and leaf diseases in the world's major producing countries have also reduced the supply of rubber gloves.

"This will definitely tighten," said Ann Marie Uetz, a Detroit partner at Foley and Lardner LLP, which represents auto parts manufacturers. "So far, from our point of view, this is far from the chip shortage, but it is definitely brewing."

Supply problems did not start to hit the United States until the second half of last year, when China, the world's largest auto market and largest consumer of natural rubber, used low prices and economic recovery opportunities to make massive purchases. Whitney Luckett is a natural rubber distributor located in Colorado Springs, Colorado—one of only three natural rubber distributors in the United States, and the owner of Simko North America, Whitney Luckett Whitney Luckett noted that China partly purchases rubber from Vietnam to reserve rubber as its national reserve for use in tapes, bandages, and vehicle tire sidewall grades.

A report from the Kuala Lumpur-based Natural Rubber Producing Countries Association in January showed that although the pandemic-related disruption caused U.S. imports to fall by 16%, the buying frenzy has made China’s natural rubber purchases in 2020 almost the same as the previous year. Flat.

Mike Jones, global purchasing director of Intertape Polymer Group, which produces tapes for e-commerce companies, said that at the end of last year, U.S. rubber supplies became so tight that some distributors ran out of buffer stocks.

"After the purchase started, it was not limited to China. Many tire companies also came back to buy rubber," Jones said. "U.S. rubber supply has become very tight."

This is reflected in the price of rubber futures. According to Bloomberg data, the price of natural rubber climbed to around US$2 per kilogram at the end of February, a four-year high, and then fell recently. Robert Meyer, the former CEO of rubber giant Halcyon Agri Corp. Ltd., expects prices to soar to $5 in the next five years.

"The supply issues we are seeing are structural," said Meyer, who is now the managing director of Singaporean venture capital firm Angsana Investments Private Ltd.. "They won't change anytime soon."

Tor Hough, founder of supply chain research company Elm Analytics, said this situation exposes the dangers of just-in-time manufacturing practices that have been a boon to the automotive industry for decades. By keeping inventory lean to control costs, companies are vulnerable to attacks during periods of increased supply chain volatility. According to consulting firm AlixPartners, the semiconductor shortage — exacerbated by automakers’ reductions in orders during the Covid-19 shutdown — could result in $61 billion in lost revenue this year.

Dan Finkenstadt, a professor at the Naval Defense Management Graduate School in Monterey, California, pointed out that China’s recent rubber purchases have highlighted another vulnerability in the United States. The United States does not have a national inventory to serve as a safety net for domestic companies. He said the U.S. government can build its own inventory or provide companies with loan guarantees to finance their own additional supplies.

"People have long believed that market demand and capitalism will always exist," he said. "In a natural emergency where everyone is pulling at the same time, this is not the case."

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