This article first appeared in The Edge Financial Daily, on December 31, 2015.

KUALA LUMPUR: Prices of natural rubber could rise by as much as 14% in the first half of next year (1H16), the Malaysian Rubber Board (MRB) said, fuelled by robust demand from the tyre industry in Europe, the United States and Japan.

Its director-general Datuk Dr Mohd Akhbar Md Said sees the SMR 20 free-on-board price trending upwards in 1H16 from RM4.81 per kg yesterday, although he doesn’t expect the price to exceed the RM5.50 per kg level.

However, rubber prices are forecast to fall slightly in 2H16, after which they are expected to remain steady at that level over the next two years, he said, but did not elaborate.

Bloomberg yesterday quoted London-based research firm The Rubber Economist Ltd as saying that world production of natural rubber is expected to exceed use for two more years, with the surplus quadrupling in 2016.

The report stated that the oversupply situation came about as top producers such as Thailand, Indonesia and Vietnam were goaded by a decade-long rally in rubber prices to increase cultivation of rubber trees. Due to the expanding supply of natural rubber and the slowing global demand for the commodity amid slowing growth in China — the world’s top rubber consumption country  — rubber prices have dropped 71% from a high recorded in 2011, the report added.

Mohd Akhbar also said to stabilise the supply-demand balance, the governments of Thailand, Malaysia and Indonesia had agreed to increase the domestic consumption of rubber.

One of the ways the governments is looking to do so is by increasing the usage of rubber in roads, he said, adding that the governments plan to use 300,000 tonnes of rubber from 2016 over a period of three years for the construction of roads.

He said research conducted by the MRB showed that rubberised roads require 4.2 tonnes per km for road resurfacing and the board is looking to use a higher amount of 12 tonnes per km for the construction of roads.

“From 2016 to 2018, we are looking at creating 700km of rubberised roads involving state roads in the country,” Mohd Akhbar told reporters after a memorandum of understanding signing ceremony between the MRB and Nadicorp Holdings Sdn Bhd for the trial use of environmental-friendly tyres yesterday.

Malaysia produces about 700,000 tonnes of natural rubber per year.

Earlier at the event, MRB chairman Datuk Wira Ahmad Hamzah said early planning of the trial use of environmental-friendly tyres will see a production of 500 tyres of ekoprena and pureprena rubber, a type of natural rubber produced from renewable sources, for express buses under Konsortium Transnasional Bhd along the north-south routes of Peninsular Malaysia.