Supply and Demand of the Rubber market

2.0 Introduction

Natural rubber product such as raw rubber and hevea wood products are kinds of world bulk industrial raw material; they are scare, deficient and strategic resource important for national defense and industrial construction. Due to the shortage of rubber supply and climate changes in the rubber-producing countries, supply resource of natural rubber has been decreasing annually and it makes global market suffering from significantly high price of the rubber (Hanim Adnan 2011).

The insufficient supply of the natural rubber has bought various issues to the rubber market and it has brought contribution to the economics of Malaysia. Therefore, relevant economic theories will be used to discuss in the natural rubber issues. This report will examine in the concepts of demand, supply, shortages, market equilibrium, and elasticity. Besides, well labeled diagrams will be including in the later paragraph to explain the whole concepts.

3.0 Analysis

3.1 Demand

The effects of shift in demand on rubber market

Figure 1.1

D0

D1

S0

P1

P0

Q0 Q1

Quantity

Price

Demand can be defined as “An economic measure, which shows an unlimited desire, as well as the ability to buy for a products or services” (Demand 2011).

According to the executive officer of glove manufacturer Careplus Group Bhd Lim Kwee Shyan, demand surged because of making medical rubber gloves due to growing hygiene awareness following the H1N1 pandemic. Therefore, it has become an essential product for the healthcare industry (Kian Seong 2010).

Besides, there is a strong demand for tyres from China and India of the automobile sector (Prices to Stay High on Ongoing Tight supply 2011). Hence, ceteris paribus, there is a high demand to the natural rubber especially when the increase of population and the healthcare awareness has elevated.

From Figure 1.1, it shows the effects of shift in demand on rubber market. Furthermore, the number of buyer is a non-price determinant, when the buyers increase the quantity of a product they want to buy at a given price; it makes the market demand curve shift to rightward from D0 to D1 in the Figure 1.1. Therefore, new equilibrium price and the quantity demand increase from P0 to P1 and Q0 to Q1, respectively.

3.2 Supply

Supply can be described as “The total amount of a product or service available for the customer to purchase at a given price” (Supply 2011).

Figure 1.2

D0

S0

S1

The effects of shift in supply on Rubber market

Quantity

Price

P1

P0

Q1 Q0

The extreme and changeable weather of Malaysia and the issues of global warming will affect latex flow and reduce the supply of the rubber. For example the higher temperature in the morning and unpredictable natural disaster which are detrimental to the rubber trees (Admin 2011).

Malaysia now was facing the shortage of rubber clones due to the changeable weather and over-tapping the rubber trees which raise the problem of supply shortage (Jack 2011).

Expectation of producers is a non-price factor so it shifts the supply curve to the leftward from S0 to S1. However, the quantity of rubber supplied decrease from Q0 to Q1 because of weather problem and unable to produce at given output, resulting in increase price of rubber from P0 to P1 shown in Figure 1.2.

3.3 Shortage

Figure 2.1

Shortage

Q Q1 Q

Quantity

The Effects of shift in demand on rubber market

Price

Pn

P0

E

D1

S0

D0

Figure 2.1

Shortage

Q Q1 Q

Quantity

Price

Pn

P0

E

D1

S0

D0

The Effects of shift in demand on rubber market

There is excess demand and the supply for the natural rubber is limited, it brings the resulting of shortage which has consequently led to price increase in the Malaysia since 2008 (World rubber supply tight, but price outlook bullish 2010).

From Figure 2.1, at P0, as demand shifts from D0 to D1, it shows the demand has increase and the equilibrium price has move from P0 to Pn shows that the quantity of supply also increase. However, in the Figure 2.2, the supply shifts from S0 to S1, which means decrease in supply and the equilibrium price has increase from P0 to Pn and decrease in quantity demanded.

As a conclusion, through Figure 2.1 and Figure 2.2, both of them showed a shortage which is the shaded region where the quantity demanded (Q1) exceeds quantity supplied (Q0). Besides, an upward pressure fall on the price of rubber due to the shortage and when the price is at Pn resulting a new equilibrium, point E and the quantity demanded is at Q1, as shown in Figure 2.1 and Figure 2.2.

3.4 Market Equilibrium – Changes in Equilibrium

Equilibrium described as “in a market occurs when the price balances the plans of buyers and sellers” (Hubbard, 2009).

Bernama stated that the prices of natural rubber will continuously rise in this year but the output of the natural rubber in February has drop if compare to January whereas the demand increase in world markets (February Rubber Output down 15.8 Per Cent 2011).

Figure 3.1

S1

S

D

D1

P1

P0

Q

Quantity

Price

Supply & Demand for Rubber market

In the change in equilibrium, there is increase in Demand and decrease in supply. There Therefore, the demand curve shift rightward from D to D1 and supply curve shift leftward from S to S1, as shown in Figure 3.1. The new equilibrium price increase and move from P0 to P1. But there is no change in Quantity. The equilibrium price rise up but quantity is indeterminate.

3.5 Subsidy

Smallholders can

5.0 Reference Lists

Adnan, Hanim. 2011. Right time for renewed interest in rubber sector. The Star.http://biz.thestar.com.my/news/story.asp?file=/2011/4/5/business/8412507&sec=busi ness (Accessed April 1, 2011).

Demand. 2011. Investor Glossary. http://www.investorglossary.com/demand.htm (Accessed April 1).

.Kian Seong, Lee. 2011.Careplus gains 4 sen premium on ACE Market debut. The Star. http://biz.thestar.com.my/news/story.asp?sec=business&file=/2010/12/7/business/756724 2 (Accessed April 2, 2011).

Supply. 2011. Business Dictionary.com. http://www.businessdictionary.com/definition/supply.html (Accessed April 2, 2011).

Admin. 2011. Global warming threat to natural rubber. Srilankan rubber Industry. http://slrubberindustry.com/2011/01/19/global-warming-threat-to-natural-rubber/ (Accessed April 2, 2011)

Jack Wong. 2011. Rubber board unveils planting scheme. The Star. http://biz.thestar.com.my/news/story.asp?file=/2011/3/29/business/8364614&sec=business (Accessed April 2).

World rubber supply tight, but price outlook bullish. 2010. Bloomberg. http://www.engineeringnews.co.za/article/global-outlook-for-rubber-supplies-are-bullish-2010- 02-12 (Accessed April 3, 2011).

February Rubber Output Down 15.8 Per Cent. 2011. Bernama. http://www.bernama.com/bernama/v5/newsbusiness.php?id=578466 (Accessed April 12, 2011)