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The Asian rubber industry is no stranger to fluctuations in commodity prices and upshot of market mechanisms. This year has jump started with improved rubber prices, compared to earlier quarters of last year, supported by increasing crude oil prices and healthy domestic demands.
However, volatility still lurks in the market as measures to shore up global oil prices have not held up. For example, the deal forged within the 13 oil exporter nations-Organisation of Petroleum Exporting Countries (OPEC) to cut down oil production initially resulted in a 15% rise in global oil prices. Some experts were sceptical how long this deal would be observed, considering that some of the OPEC member countries, like Iran, Iraq and Saudi Arabia, had initially refused to cut oil production. Recent developments have now seen oil prices plunging to below US$49/barrel benchmark amidst the glut in US crude stockpiles.
Nevertheless, for Asian rubber producers, having gone through seasons of low rubber prices, stockpile gluts, and low demands, the industry remains secure under a favourable demand-supply climate.
Demand tops output
Natural rubber (NR) production in Asia has been fair of late. The year, however, started off with a declining production, according to Kuala Lumpur-headquartered Association of Natural Rubber Producing Countries (ANRPC), an organisation of 11 rubber producing countries (which collectively account for 90% of the total global NR production). It stated that total production of NR in ANRPC member countries fell by 2.2%, year-on-year to 1.7 million tonnes, during the two-month period. This coincided with a 3.3% rise in demand from the ANRPC, it said.
ANRPC members consumed 1.2 million tonnes of NR during the current year reporting period. Generally, NR consumption in major producing countries increased. Nonetheless, the demand still outpaces the current output from the bloc.
Thailand flood waters affect output; rest of countries up
Described as the worst rainfall in over 30 years, Thailand’s southern region had not expected the floods to continue until January this year. It not only claimed lives but also gutted properties and industries. The floods also affected rubber production in the south, where nearly two-thirds of Thailand’s rubber growing areas are located.
South Thailand’s Songkhla is being prepped to become the country’s rubber centre. It has a number of rubber planting tracts, and the largest rubber trading centre in the south is located in Hat Yai city near the Malaysian border. It is also the site of a worldstandard rubber research centre and the location of the 197-ha Rubber City, due to be completed this year, according to the Industrial Estate Authority of Thailand (IEAT).
The ANRPC report indicated that the floods, as well as the leaf-shedding season of rubber trees across countries, caused production to decline by 13.9%. The January-February 2017 preliminary estimates of NR production in Thailand, a country that accounts for 37% of the global supply of rubber, stood at 726,000 tonnes. This is lower than the actual estimate of 843,000 tonnes over the same period a year ago.
The rest of the major producing countries witnessed an increase in rubber production during the covered period of the report: Indonesia’s production increased by 4.4% from 505,000 to 527,000 tonnes; Vietnam by 7.9% from 140,000 to 151,000 tonnes; Malaysia by 7.7% from 130,000 to 140,000 tonnes; and India by 30.3% from 89,000 to 116,000 tonnes. Only Sri Lanka’s output declined by 29.8% from 19,000 tonnes in the first two months, to 13,000 tonnes over the same period this year.
Of the countries mentioned in the report, and in terms of percentage, those that witnessed a galloping rise in production include China (175%); Cambodia (48%); and the Philippines (36.7%).
Consumption up, except in Malaysia
The ANRPC cluster consumed more than 1.2 million tonnes of NR during the first two months of 2017, up 3.3% from the same period in the previous year. Individually, consumption growth varies: in China it grew by 4.9%, in India 1.1%, in Thailand 7.8%, and in Indonesia 3.4%.
Surprisingly, Malaysia’s consumption fell by 3.6% in the first two months of 2017, ANRPC stated. The country is home to the world’s largest glove makers that are supplying about 60% of the total global demand for gloves. Malaysia’s rubber industry accounted for RM8 billion in the total national exports from January-March 2016, according to the Malaysian Rubber Board (MRB).
MRB also indicated that the country’s rubber glove output in the January-March 2016 period reached nearly 10.6 billion pairs.
Meanwhile, the ANRPC report stated that policy deviation of the incumbent US government on healthcare will affect the glove manufacturing and other latex-based manufacturing industries in Malaysia.
This situation may lead to an, albeit transitory, soft market trend considering certain market applications. This outlook is supported by US-headquartered consultancy Stratistics MRC forecast in its Rubber Gloves – Global Market Outlook 2016-2022 report that the market’s growth may wind up at a CAGR of 8.5% between 2015 and 2022. This growth will be accelerated by the burgeoning demand in the electronic manufacturing market as well as the emergence of new diseases, rising healthcare expenditure, increasing health threats and increasing hygiene awareness and healthcare regulations.
Even though the year appears to have started slow for Asian rubber producing countries, the rest of 2017, nevertheless, indicates optimistic growth.
The “supply and demand fundamental, along with a set of non-fundamental factors”, according to ANRPC, are favourable, particularly during the period from March-May. It also says that despite potential price challenges, “in response to developments in the crude oil sector, variations in currencies and flow of speculative funds”, the market is expected to grow.