Understanding industry updates and news on price fluctuations of natural and synthetic materials needed for glove production is crucial. An econometric model is being developed that will be used for price forecasting.
Inflationary pressures show signs of becoming a long-term presence in China. American consumers bought cheap imported goods because the Chinese currency remained undervalued. This led to large US trade deficits. The US consumes fewer goods from abroad and exports more goods made in the United States due to the recent upward trend in the price of imported goods.
Currencies play a key role in commodity prices. The Yuan has risen 28% against the dollar in six years. The weaker dollar helps US exporters, but the stronger yuan and higher costs within China push up the cost of goods for US buyers.
The United States recently reduced the number of barrels of oil imported, due to rising oil prices and weak demand. The amount of oil imports has moved downwards since 2005 with the expectation that this trend will continue. High oil prices reduce consumption while increasing production, leading to fewer imports and lower fuel prices.
Coupled with an increase in natural rubber supply in 2011, demand for natural rubber will be subsidized due to setbacks in car production in Japan and declining demand for cars in China. China’s fiscal tightening will push rubber prices down due to speculative demand for rubber subsidies.
Natural rubber trees were planted on a large scale in 2006-2007. Rubber trees take 6-7 years to produce sap. Supply is inelastic in the short run, and long-run supply will not increase noticeably until 2013. According to the International Rubber Study Group, global production of natural rubber has increased by about 5% year over year.
In 2011, China’s auto sales growth is expected to slow year on year. China canceled the preferential purchase tax policy and the car subsidy program for rural areas. 70% of the world’s rubber supply is used for tire production. According to the IRSG, total world tire production will be lower than in 2010.
Natural rubber prices have soared due to rising oil prices, a weakening US dollar and excess liquidity. With GDP growth slowing in Europe, Japan, China and the United States, demand for natural rubber will decline in the short term. As the price of latex gloves increases, the substitution effect increases the demand for vinyl and synthetic gloves.
Latex prices typically track crude oil prices. Given the current supply and demand for oil, crude oil market prices should hover between $75 and $85 per barrel. Based on a moderation in crude oil prices and all of the above factors, latex prices will moderate or remain flat during the year.
Nitrile Butadiene Rubber (NBR) now makes up 68% of total synthetic rubber consumption worldwide. NBR demand has skyrocketed; this increase is attributed to the production of NBR (nitrile) gloves. Approximately 60% of the material used to make nitrile gloves is butadiene.
Although latex gloves have been the preferred choice for the medical industry due to their better elasticity and lower average selling prices, the demand for nitrile gloves has been increasing. Exports of synthetic gloves to the US, European Union, Japan, Canada, Australia, China and Brazil grew 58% year over year in 2010. High latex prices have made nitrile gloves cheaper and attractive. Nitrile production techniques have advanced, closing the quality gap with latex gloves. Latex allergies are also a concern. Since nitrile prices have been more stable than latex prices, glove manufacturers can better protect margins by controlling their inventory costs by using NBR.
Supply issues negatively impact prices for nitrile gloves and petroleum-based vinyl gloves. Nitrile gloves are derived from petroleum. Increases in the costs of raw materials, transportation and fuel surcharges have increased dramatically in the last six months. Given the increased demand for NBR, manufacturers have experienced shortages of raw materials. Japanese manufacturers were also affected by the recent earthquakes in Japan. Nitrile glove prices will increase in the short term.
This year, vinyl costs are up nearly 25%. With the continued high cost of oil and a shortage of synthetic materials, prices are rising by an average of $3 to $4 per box. Consumers of disposable gloves have increased their overall demand for vinyl, as latex and nitrile glove prices continue to exceed vinyl glove prices. When trading vinyl, the substitution effect pushes vinyl prices up and will continue to do so in the short term.