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If Vietnam joins IRC, will raw material costs rise?

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The International Rubber Consortium (IRC) has asked Vietnam to join existing members Thailand, Indonesia and Malaysia -- the three largest natural rubber exporters in the world -- in the group.

According to a report by the Wall Street Journal, Vietnam has agreed "in principle" to join. What does this mean for our industry?

Saul Ludwig, managing director of KeyBanc Capital Markets, believes the result of such a union would not necessarily lead to higher natural rubber costs.

"The IRC currently produces 75% of the world's natural rubber, and with Vietnam -- currently the fifth largest natural rubber producer -- the IRC could have greater pricing power," he says. "The IRC prefers rubber prices remain above $1.18 a pound; currently, natural rubber is priced at $1.47 a pound, well above the IRC's preferred price of $1.18 a pound."

In past reports, Ludwig has noted that both natural and synthetic rubber prices already are on the rise. Because of that, tire producers "will likely have to announce additional price increases to cover the cost of raw materials."

"With inventories across the supply chain at a 10-year low and fill rates only in the 75% range, conditions remain favorable for the tire industry, despite the recent increases in raw materials," he adds.

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