Today, rubber stocks are in focus for investors. An intriguing report surfaced highlighting some of the concerns around supply-demand imbalances. As a result, many on Wall Street want to know what this will mean for various players in the rubbers space.
So, where should investors start?
Importantly, a wide range of companies is involved with the rubber supply chain. That means investors should watch companies such as Trinseo (NYSE:TSE), Berry Global (NYSE:BERY), and Michelin (OTCMKTS:MGDDY).
Indeed, as with any commodity-focused business, supply and demand matter. Given the supply surge we’ve seen of late in the auto sector, tire demand is skyrocketing. For rubber producers and tire makers, this is a recipe for higher margins and increased profits over time.
Accordingly, it’s unsurprising to see these stocks up between 1% and 3% today on this news. After all, these companies are significant players in the rubber industry.
Let’s dive into what this report suggests, and why investors are piling into this trade today.
Rubber Stocks Higher As Report Highlights Demand Surge
According to a recent report by CNBC, rubber demand is set to surge. In fact, the report notes we may be “on the cusp of a rubber apocalypse.”
For companies in the rubber business, very much the opposite. Indeed, rising demand in the auto sector has resulted in high demand for tires. As we drive more coming out of this pandemic, this catalyst is only set to intensify. Indeed, this acceleration of demand is bullish for the aforementioned group of companies.
On the supply side of the equation, rubber is becoming more scarce and difficult to ship. The report cites various factors including climate change, the pandemic and shipping constraints as reasons for this imbalance. Given the fact that approximately 90% of rubber comes from overseas, global producers are beholden to market prices. Whether these higher input prices negatively impact margins, or whether companies are effectively able to raise prices to maintain margins, remains to be seen. However, it’s clear the rubber market is expected to expand in a big way.
According to experts, the global rubber market could grow from around $40 billion last year to as high as $68.5 billion in 2026. That kind of significant annual growth is something investors are keeping an eye on today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.