The year’s salvo for the Southeast Asia rubber sector

ASEANSINCE the feelers that the Eurozone crisis is coming to an end, and the US economy steadily treads towards recovery, some, if not all, of the emerging economies of Southeast Asia are embroiled in their own economic issues. The region, which has helped directly and indirectly the businesses of the EU and the US during the rough times by being their market and/or manufacturing base, are now mulled to be at the brink of a progress bubble. The region’s rubber sector, which is akin to growth indicators from automobile purchases, tyre manufacturing, gloves sales, is seemingly on a limbo at the onset of the year.

In a yet another round of low demand for natural rubber from its largest consumer, China, amidst the latter’s nine-month high surplus of stockpiles, rubber prices are threatened to surge.

Citing stockpiles data monitored by the Shanghai Futures Exchange, which climbed 0.9% to 176,027 metric tonnes, the highest level since November 2004.

Moreover, hoarding of the commodity in anticipation of increased prices during the low supply season from December to February for latex, contributed to the surplus.

In recent reports, industry experts say that natural rubber (NR) physical prices have dipped on Asian markets since late 2009, and the sector is wary of China showing a decelerating economy. Likewise faced by poor demand from the US, NR producers and supplier in the ASEAN saw contracting orders and excess in production. The global glut of NR, which was pegged to have reached 366,000 metric tonnes from 336,000 tonnes in 2013, is projected by the UK-headquartered Rubber Economist to expand this year.

Meanwhile, the Association of Natural Rubber Producing Countries (ANRPC) cites that rubber producing countries of the ASEAN, which accounts for 93% of the global supply and 57% of the global demand, post an increase of 4,7% to 11.15 million metric tonnes in its 2013 output, driven by growth in Thailand, Indonesia and China.

This phenomenon, although experts noted that it is only temporary, had been foreseen early on by Indonesia, which in late last year called for a region-wide 10% cut in rubber production to abate the glut. Whether it was a wake up call set off late, or had been left unheeded, the fact remained that the stockpiles have become too much to handle that China and countries that used to buy rubber in large volumes are buying in small amounts and are currently unable to absorb the excess rubber.

Thailand: Rubber subsidy-a fiscal setback?
Mired in political unrest, Thailand, the world’s top rubber producer, is mired in labour shortage as well as high minimum wages (pegged at 300 baht, or above US$9) – conditions which could dampen competitiveness in strategic manufacturing sectors promoted by the National Economic and Social Development Board (NESDB), including the rubber sector.
Business Monitor International, in its recent report, surmises that political tensions could shrink interests from investor through to the year. The group says it downgraded its 2013 real GDP growth forecast from 4% to 3.6%, with growth to remain at 4.3% this year.

It also cautioned that the expansion of rubber and rice subsidies (which had been doubled in September last year to appease protesting farmers against falling prices) could exacerbate Thailand’s efforts to fix the country’s fiscal imbalances, likewise predicting that the country could only achieve a balanced budget by 2018-2019.

Meanwhile, an increase in rubber acreage is forecast by the Office of Agricultural Economics to up by 4.3% to 4.03 million metric tonnes rubber production this year from 2013. Tapping area is expected to reach to 2.5 million hectares, it added.

Indonesia: More domestic demand for rubber
In Indonesia, rubber output increase to 7% or 3.2 million tonnes was eyed in 2013 from the previous year’s 3 million tonnes; but export value levels stay within the range of 2.7 million tonnes, a slight drop from last year’s 2.8 million tonnes, according to the Indonesian Rubber Association (Gapkindo).

Likely to contribute to the ballooning rubber glut, Indonesia is projected to post a 2.1% to 3.16 million tonnes increase in yield.

Domestic demand for the commodity increases, which explains for the decline in export. However, the association said that will also favour the local manufacturing sector in a way that the local consumption will reduce dependency on imports.
Nonetheless, the country, which accounts 90% of its overall output to small scale growers, is reliant on the US – its biggest rubber buyer (purchasing 20% of its exports). The fading economic steam of China (which buys 15% of Indonesia’s rubber) will also affect the country’s exports.

However challenged with the probability of weakened demand from its foreign buyers, Indonesia maintains its investments potentials, given its population, and being a global supplier of NR.

Taiwan;s largest bike tyre manufacturer, Cheng Shin Rubber, has built a factory to be based in Jakarta, Indonesia-its first in Southeast Asia. The maker of Maxxis tyres is expecting completion of the EUR 235-million plant by 2015.
Chandra Asri and Michelin are also polishing up its synthetic rubber plant plans, which they intend to build by early 2015 in Cilegon, Banten province, and to come on line by 2017.

Vietnam: Rising rubber producer
Last year, the Minister of Planning and Investment of Vietnam pronounced that the country has sustained economic success, in particular addressing the inflation rate and stabilizing the general economy.

The New Year also opened good news for the sector, as report of a USD 1 billion trade surplus has been posted for the country’s rubber products, according to the Ho Chi Minh City Rubber and Plastic Manufacturers Association in a press conference held for an industry exhibition event.

Moreover, Vietnam is seen to climb the third global rubber exports rank, probably outpacing Malaysia, Based on report from the Rubber Economist, the country’s rubber output may hike by 1.5% to 995,000 tonnes this year following a surge of 14% to 980,000 tonnes in 2013.

In terms of productivity, Vietnam followed India and Thailand, with its estimated 1,707 tonnes of latex per hectare production, fetching 105 million VND in 2013.