During a 19th-century boom in demand for rubber, steel magnate Andrew Carnegie is reputed to have said, "I ought to have chosen rubber." The same could be said today, more than a century later.
Prices for rubber, like other commodities, are on the rise. Buying from China and India is stretching thin the approximate 9.3 million-ton annual yield of natural rubber, used in products ranging from tires to condoms. Political unrest is propelling prices further. Although it's processed from the sap of the Brazilian rubber tree, most of the world's supply comes from Thailand, Indonesia, and Malaysia. In December, fighting between Muslims and police in Thailand upset distribution.
"We are very worried about the availability of the natural-rubber supply," says Hidde Smit, secretary general of the London-based International Rubber Supply Group. At the end of the third quarter, natural rubber cost $1,625 per metric ton (2,200 pounds), up 27% in a year, IRSG says.
What to do about the dearth? Smit says synthetic rubber won't suffice. Often used in combination with its natural counterpart, synthetic rubber is petroleum-based, and has grown more expensive as oil prices climb. Furthermore, synthetics are considered weaker and less elastic than natural rubber. Smit says they're unsuitable for airplane tires and certain other high-performance uses.
MEDICAL FOCUS. But Yulex, a small startup based in Carlsbad, Calif., is banking on another alternative: a short flowering shrub called guayule (why-YOU-lee) that produces a natural rubber in its bark. Native to the U.S. Southwest, guayule could form the foundation of a domestic rubber industry, says Yulex Chief Executive Jeffrey Martin. By as soon as 2010, there could be "shortages in natural-rubber production," Martin says. "Synthetics just won't fill the bill."
Yulex, whose name is a play on the words guayule and latex, was founded in 1997. It has 1,000 acres of guayule in the ground in the Southwest, and plans to have at least tripled that by the end of 2006. The company has exclusive license to the U.S. Agriculture Dept. (USDA) patent for grinding the plant into latex. In October, Yulex closed on $8 million in a venture-capital round led by Argonaut Private Equity.
Martin isn't ruling out a push into the tire market, the rubber industry's mother lode. But for the moment, Yulex is focused on medical devices, which require less raw material. While there currently aren't any guayule-latex products available, Yulex now sells liquid latex, through a distributor, to more than 10 medical-device companies. Those firms, in turn, are developing products from guayule latex, though Martin declines to name them.
LATEX RISKS. Guayule has another strong advantage: It doesn't cause a reaction in people allergic to latex from the rubber tree. According to the Occupational Safety & Health Administration, about 10% of health-care workers are "latex-sensitive."
Latex allergies became a problem in the late 1980s and early '90s. In a response to AIDS, health-care workers began wearing rubber gloves more frequently, and for longer intervals, to protect themselves from bodily fluids. They were also more exposed to allergenic proteins in the latex.
Patients who suffer from latex allergies can display respiratory problems and hives. In rare cases, they have died from anaphylactic shock, a severe and rapid attack of symptoms that can include a weakened pulse and difficulty breathing. Since latex allergies are often cumulative, once someone is sensitized to rubber proteins, he can suffer recurrences years later from even a brief exposure.
People with the disabling birth defect Spina Bifida experience latex allergies in much higher proportions, perhaps because they undergo numerous surgeries -- and heavy latex exposure -- within weeks of birth.
UNDERCUTTING SYNTHETICS. Because guayule contains proteins different from those found in the rubber tree, the desert plant doesn't cause a reaction in sensitized patients. Provided they receive approval from the Food and Drug Administration, Martin hopes the first guayule devices will be available in 2006.
Yulex may also have a price advantage. Natural latex was selling for about $1.03 per dry pound in the U.S. as of Dec. 20, says Thomas Marsh, president of Yulex distributor Centrotrade Rubber USA. High-quality synthetic latexes, such as polyisoprene, sell for several times more. Martin says Yulex intends to sell guayule latex for less than the synthetics, which could become more dear, depending on the price of oil. Should the synthetic stuff become more expensive, Yulex will have a larger opening for carving out market share for devices where synthetics are commonly considered sufficient.
Despite guayule latex' obvious appeal, Yulex likely will face tough challenges as its products become available. Since the outfit began operations, health care has made progress in combating latex allergies. Synthetic latex gloves, for example, are in widespread use. This suggests that the best initial uses for guayule latex will be in relatively expensive devices like catheters and surgical gloves -- as opposed to examination gloves -- where it could outperform synthetics.
USDA INITIATIVE. Unfortunately, there's a small chance guayule could create the same sort of problems it aims to solve. Unlike synthetics, guayule contains proteins and could introduce a new type of allergy. Kevin Kelly, an allergy immunology specialist and chairman of the pediatrics department at Kansas City's Children's Mercy Hospitals & Clinics, says some patients may show an adverse reaction to guayule. "The risk is not zero," he says, but "I think the risk is small."
Yulex counters that there is much less total protein -- and less exposure to it -- in guayule latex than in products derived from the rubber tree. Martin also points out that Yulex will be unlikely to repeat the mistake of releasing latex with excess protein. The USDA has embarked on an initiative to produce domestic natural rubber. Through an agreement with the USDA, Yulex would get the first right of refusal on manufacturing and extraction technologies involving guayule that may result from the USDA effort.
REPEATING HISTORY? Colleen McMahan, lead scientist of the USDA program, says, "It's a roll of the dice" for Yulex. She says there appears to be a niche for Yulex' latex, and there's "almost no doubt" that guayule rubber meets natural rubber's technical specifications. She says it could quickly be eclipsed, however, by a new synthetic. In addition, various other plants hold out the promise of being developed into new rubber crops. McMahan's project alone is exploring sunflowers and tobacco.
Guayule rubber, in fact, has been a known quantity for about a century, without ever sprouting into a sustainable success story. The U.S. used guayule during World War II, when the Pacific war prevented access to Southeast Asia. But guayule's prospects soon faded, as it became cheaper to import rubber from Asia than to grow and harvest the domestic plant.
Smit of the Rubber Study Group said guayule has always proven too "capital-intensive" for commercialization. Even so, he's unaware of any other rubber-producing plants that are as commercially advanced as guayule. Other efforts under way to alleviate pressure on rubber production and prices include planting the trees elsewhere in the tropical world, such as parts of Latin America, he says.
TIRE TALKS. To hedge its bets, Yulex is experimenting with genetically modifying guayule plants to boost their rubber yields. As the company expands, it stands to benefit from more cost-effective production and farming.
Looking down the road, Yulex has also begun laying plans for its evolution into a domestic natural-rubber industry. Martin says he's talking with two large tire manufacturers about the possibilities of using guayule, though he declined to name them. Given that rubber has become pricier, it could be an appealing idea.
Industry giant Goodyear Tire and Rubber (GT) spokesman Keith Price says, "We know what they are doing, and are looking at possible conversations with them." No wonder this tiny company has a bounce in its step.
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Halperin is a reporter for BusinessWeek Online in New York
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