Middle East Tensions Disrupt Supply Chains; Pressure on Rubber Industry Intensifies

1. Market Dynamics

Malaysia’s Deputy Prime Minister announced that the country currently operates 19 plants utilizing rubber waste to produce biodiesel, boasting a combined monthly production capacity of 1.5 million liters. The government plans to scale up production to lower diesel prices, a strategy expected to stabilize fuel costs over the long term.

The German Chemical Industry Association (VCI) welcomed the EU’s adjustments to the Market Stability Reserve (MSR) mechanism for carbon markets, deeming the suspension of allowance cancellation a positive step. However, the association called for clear benchmark rules to prevent a reduction in free allowance allocations. Furthermore, the VCI urged an acceleration of the reform process and improvements to energy and hydrogen infrastructure to prevent the relocation of investment and production value away from the European chemical industry.

Amidst surging costs for raw materials, fuel, and logistics—triggered by the geopolitical situation in the Middle East—Japan’s Zeon Corporation announced that it would raise the prices of various synthetic rubber products effective May 1st. The price hikes apply to grades including BR, SBR, IR, and NBR, with the magnitude of the increase varying by product type.

The GEP Global Supply Chain Volatility Index indicated that supply chain pressure rose to a three-year high in March, with rubber identified as one of the raw materials facing tightening supply. Energy price shocks and disruptions to maritime shipping—stemming from the conflict in the Middle East—have prompted manufacturers to increase their stockpiling of safety inventory.

The German Association of Automotive Parts Suppliers (ArGeZ) warned that the industry is facing a "deep structural crisis." Weak order volumes, rising costs, and intensifying international competition are projected to result in a fourth consecutive year of declining production in 2025, accompanied by a 3.4% year-on-year reduction in employment. With no signs of improvement visible for early 2026, business sentiment remains persistently low; high energy and labor costs are increasingly compelling suppliers to accelerate the relocation of their production operations overseas.

2. Industry Data

In 2025, India's natural rubber production is projected to increase by 3.1% to reach 903,000 tons, while consumption is expected to rise by 2.6% to 1.438 million tons. Meanwhile, synthetic rubber production is forecast to grow by 5.8% to 602,000 tons, with consumption also increasing by 5.8% to 891,000 tons. Within the tire manufacturing sector, natural rubber consumption is expected to decline by 6%, while synthetic rubber consumption is projected to rise by 7%.

Last week, natural rubber futures prices across major Far Eastern markets generally trended downward, dragged down by sharp declines in crude oil and synthetic rubber prices. The OSE rubber contract in Japan edged down by 0.9%; contracts on the Shanghai Futures Exchange and the Shanghai International Energy Exchange fell by 2.5% and 3.3%, respectively; and the SICOM contract in Singapore dropped by 1.0%. Market trading remained sluggish, accompanied by an increase in profit-taking activity.