A worker unloads car tires at a factory in Sumter, South Carolina.

Automakers struggling with factory shutdowns and global chip shortages caused by the pandemic 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 secure shipments before the market is further squeezed.

As companies in almost every market are struggling to deal 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 and now finds 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. Similarly, General Motors said 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 Karlstad Group, which makes tires for off-road vehicles and agricultural vehicles.

Natural rubber is made from the white sap of trees found in warm and humid climates such as Thailand and Vietnam. Although petroleum-derived synthetic rubber is the first choice in certain applications, natural rubber has characteristics that are critical to products such as gloves and packaging tapes-both types of rubber have seen demand growth during the pandemic. As a key component in the tire and the anti-vibration component under the hood, it is more closely related to the automotive industry than any other industry.

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 rubber producer and exporter. In the years before the pandemic, it has been fighting the continued low price situation, which has caused farmers to plant more trees to compensate 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 nowhere near 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 January report by the Kuala Lumpur-based Natural Rubber Producing Countries Association showed that despite the pandemic-related disruption that caused U.S. imports to fall by 16%, the buying frenzy has kept China's natural rubber purchases in 2020 almost the same as the previous year. .

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., 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 Angsana Investments Private Ltd., a Singapore-based venture capital firm. "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 data from consulting firm AlixPartners, semiconductor shortages-exacerbated by automakers' reductions in orders during the COVID-19 shutdown period-could cause $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 of the United States, which has no national inventory to serve as a safety net for domestic companies.

"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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