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How to invest in rubber
This page explains what you need to know before investing in rubber. We look at the different approaches you can take when buying it, what moves its price, and an outlook for the year ahead.
Where can I invest in rubber online?
If you want to jump right in and start investing in rubber now, you’ll need to use an online broker. Our commodity experts have found some of the top platforms around which you find below. Simply click on any of the links to get signed up in just minutes.
Why invest in rubber?
There are lots of reasons why you should consider investing in rubber, with profit generation being at the top of the list. However, there are a range of other motivations that drive investors to the rubber market and below we’ve explained a few of the top ones.
- Portfolio diversification. Most investors stick to assets like stocks and bonds. However, adding commodities to your portfolio can help diversify and lower risk when stock or bond markets are underperforming. Rubber usually acts differently to other asset classes and even other commodities.
- Hedge against inflation. All investors have to consider the impact inflation has on their portfolio. Inflation is when money loses value over time. One way to protect or ‘hedge’ against it, is by investing in commodities. Soft commodities like rubber tend to become more valuable when inflation rises.
- Bet on the auto industry. Almost three quarters of all rubber produced worldwide goes to manufacturing tires. Rubber is used for other auto parts too including bumpers, airbags, and mats among other things. As the auto industry continues to grow, especially in developing countries, demand for rubber will rise too.
- Speculate on oil prices. There are two types of rubber; natural and synthetic. Natural rubber comes from trees. Synthetic rubber is produced using crude oil. If oil prices rise, the cost for producing synthetic rubber will increase. Natural rubber will also benefit from higher prices, as its demand will grow when synthetic becomes too expensive.
How to invest in rubber
If you want to invest in rubber there are lots of ways in which you can do it. Below we’ve listed a step-by-step guide to help you get started.
- Decide on an investment strategy. Before you make any investment into rubber, you will need to decide if you’re going to be active or passive. This will help guide you on the best method of investing.
- Do your research. You’ll want to conduct research into the rubber market. Considering its main uses and benefits is a great place to start. Further down on this guide we’ve included some of the factors that impact the rubber market.
- Set a budget. You may already have a figure in mind that you’re prepared to risk. Setting a budget and sticking to it will help you make the best decision. It goes without saying to never risk more than you can comfortably afford to lose.
- Choose between the long term and short term. Your research into the rubber market may help you decide on its short term or long term outlook. Choosing which time frame you plan to invest for can help you decide on the right method for investing.
Find an investment platform. Investing in rubber is not as popular as investing in stocks or shares. Not all brokerages will offer avenues to invest in rubber so its important to choose one that does. Click the blue button below to be taken to our list of expertly selected brokers offering rubber.
Ways to invest in rubber
There are lots of ways in which you can invest in rubber and the method you choose will depend on your budget and expertise. Below we’ve explained the many different ways to invest in rubber.
Invest in rubber stocks
Most rubber plantations around the world are privately owned so it is difficult to find pure play rubber stocks to invest in. However, it is possible to put your money in stocks involved in the rubber industry, such as transportation firms, agricultural businesses, or even tyre companies.
Invest in rubber ETFs
Buying shares in exchange traded funds is often the easiest way to indirectly invest in commodities. There are no pure play rubber ETFs, although there are many that focus on the wider agricultural sector which includes rubber. Some also invest in a range of agricultural stocks giving exposure to rubber.
Invest in rubber mutual funds
Mutual funds are similar to ETFs and a cost effective way to bet on rubber. The main difference between mutual funds and ETFs is a mutual fund is managed by a professional who buys and sells assets according to their expertise. There are no pure play rubber mutual funds, although there are many in the agricultural sector with exposure to rubber.
Invest in rubber futures
The best way to directly speculate on rubber prices is to use futures contracts. The Tokyo commodities exchange and Shanghai futures exchange both offer contracts on rubber. Futures are an agreement to make a trade at an agreed price in the future. Although its worth noting that futures require a lot of knowledge and are best suited to experienced traders.
How does the rubber market work?
Supply and demand are the biggest drivers in the price of rubber. However, a lot of other factors impact rubber’s supply and demand. In the section below we’ve discussed the main ones to consider before investing in it.
- Auto industry. As we mentioned before, around three quarters of the world’s rubber goes to producing tires for the automotive industry. When demand in the auto industry is high, rubber prices tend to follow. This is especially important in countries like China and India where the automobile industry has been rapidly growing.
- Oil prices. Rubber can be produced naturally through ‘tapping’ trees, or synthetically using crude oil. Oil prices directly impact the price of rubber. If crude oil is trading at a high price, the cost of producing synthetic rubber increases. When synthetic rubber is expensive, people will move to natural rubber, which will increase its demand.
- Producing countries. Rubber is predominantly grown and produced in just a few countries. Thailand, Indonesia, and Vietnam are the world’s leading producers. Trade policies of these nations can dramatically impact the price of rubber. In the past these countries have imposed export curbs to drive up rubber prices.
- Growth cycles and demand. A rubber tree planted today will take between 5 – 7 years until it is ready to be ‘tapped’. Plantation owners are not always able to cater for demand if their trees are not producing rubber. When they are able to produce rubber, demand may have lowered. Tree growth cycles can cause imbalances in the supply and demand of rubber.
- US Dollar. Most commodities are priced in US dollars and that is the same for rubber. The strength or weakness of the dollar directly affects the price of rubber. If the Dollar is strong against other currencies, rubber importers will pay a higher price and vice versa if its weak.
When should you invest in rubber?
When the automotive industry is booming, it is one of the best times to invest in rubber. The auto sector heavily relies on rubber for not only tyres, but also a range of other parts. When auto sales are rising, auto manufacturers will require more rubber and its price will rise. Keeping track of worldwide auto sales is a good way to help time your investment into rubber.
You should also consider the price of crude oil. Crude is used to produce synthetic rubber. If the price of oil is high, the manufacturing costs for synthetic rubber will also be high. This pushes people to use natural rubber as it would be considered cheaper. However, as more people use natural rubber its demand would rise, as would its price.
Is rubber a good investment in 2022?
Yes it could be. Oil prices have been on the rise in recent years, as have auto sales. As the world moves out of the coronavirus pandemic, the auto industry is expected to see a rise in sales, which will be good for the price of rubber. If you plan on investing in rubber, its worth conducting some fundamental analysis into the wider market to help time your investment into it.
What should I do now?
If you’re ready to invest in rubber you’ll need to register with a broker. You can click the blue button below and register with one of our expertly selected brokers. Alternatively, if you want to learn more about investing or trading, you can check out our free courses. It’s also a good idea to keep up to date with the latest news and analysis which you can do on the links below.
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Fact-checking & references
Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.
Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >