How to Invest in Rubber

Rubber products are common in homes and offices.

Brand X Pictures/Stockbyte/Getty Images

The rubber industry is among the most profitable businesses that deal in natural resources across the globe. Rubber products can be found in automobile parts, tires, footwear, latex products, pharmaceutical goods, textiles, cables and wires, among others. The numerous uses of rubber increases its demand as it is produced by a few countries, with Thailand, Indonesia and Malaysia together accounting for about 94 percent of global production. As an investor, you can opt to invest directly in industries that deal with natural rubber processing or manufacture of rubber-based products. Alternatively, you can put your money in rubber stocks.

Conduct Market Research

Prior to investing in rubber, set up and develop appropriate and achievable goals by evaluating the market and how much capital is required. Market research will determine the level of demand for the kind of rubber products you want to deal in, the marketing strategies to use and the level of production required to turn a profit. Establish your target market, taxation and labor requirements. Find out about federal government programs and incentives that encourage local manufacture of rubber products and related industry machinery.

Risk Assessment

The rubber business will come with associated risks. Devise ways to cushion your business against fluctuations in exchange rates since you will likely be dealing with foreign suppliers and markets. Consider the level of competition from other companies in the rubber sector that manufacture similar products. Rubber products are highly flammable -- the possibility of fire outbreaks are high, therefore secure adequate insurance. Get to know the environmental regulations in force regarding manufacture and disposal of rubber products and ensure that your company complies fully to mitigate environmental audits and fines.

Investment in Rubber Industries

You may decide to venture in rubber tree plantations and the extraction of raw rubber, its processing or in companies that manufacture and market rubber products. Factors to consider include the level of return, the financial resources you have and the risks involved. Investing in rubber tree plantations, extraction and processing will involve dealing with foreign government authorities for approval in securing the land or setting up the plant. You may also consider partnering with established companies in rubber-producing countries that need an injection of capital. You can set up or enter into a franchise with a company that deals with manufacture or sale of rubber- based products.

Investment in Rubber Stocks

If you are an investor who does not just focus on stocks that are able to make the fastest upward move but rather those that could post strong returns over the long haul, then rubber stocks offer solid long-term investment opportunities. The parent companies of some rubber stocks have adequate assets, defensible business models and sustainable cash flow levels. Examples include Deswell Industries (NASDAQ:DSWL) with a market capitalization of $39 million, Cooper Tire & Rubber (NYSE:CTB) with a market capitalization of $1.6 billion and Myers Industries (NYSE:MYE) that has a market capitalization of $665 million. For sophisticated investors, some brokerage firms can enable you to buy or sell rubber futures contracts by accessing exchanges where they are traded such as the Osaka Mercantile Exchange, Shanghai Futures Exchange or the Tokyo Commodity Exchange.