Asian rubber sector looks forward to yearly gains after 2014

Asian rubber sector looks forward to yearly gains after 2014

Originally posted on Rubber Journal Asia, December 12, 2014.

Asia is a dominant region in terms of global rubber output and consumption.  The bloc accounted for about half of the global rubber consumption and close to half of the global output in 2012, according to an earlier report by Ceresana, a Germany-based industrial market research company.

This year, however, various issues involving prices, supply, and demand have put several roadblocks for the region’s rubber industry.

The plunging rubber prices amid the supply glut and staggered economy of China stirred the sector to scrutinize its options, among others, the International Rubber Consortium (IRCo) cartel, comprising the top three natural rubber producers: Thailand, Malaysia, and Indonesia. The tripartite had previously schemed to shore up prices by reducing production and also curbing rubber exports. However, the plan failed to serve its purpose when rubber producers and traders opted to sell off their stocks to sustain their enterprise. Likewise, rubber prices only managed to notch up by merely 1.5% in November, in the wake of the IRCo effort. With the latest rubber price woe faced by the sector, the IRCo has announced that it is refraining from making any moves until it is necessary to do so.

Over in Thailand, the incessant protests of farmers against the rubber prices having dropped by 75% in the last four years, has cast a worrisome situation for the local rubber sector. Demanding for effective government action, local rubber growers warned of a worst scenario that is, halting rubber production, if the rubber prices remain unstable.

In a recent bid to address the falling rubber prices, the Thailand government and several rubber business operators pooled a Bt420 million-fund to buy rubber in the futures market, hoping that the strategy could push the price up to Bt60 per kg. However, Bt80/kg is being sought by rubber planters, like the Songkhla Farmers Council, saying that their production cost is already at Bt65/kg.

Meanwhile, rubber policies and research on the development sustainable rubber products are being taken up with the proposal for the passage of the Rubber Authority of Thailand bill.

In Cambodia, some enterprising rubber sellers have taken advantage of the low domestic rubber prices. According to reports, rubber prices in Cambodia nosedive by an estimated 30% in the first half of 2014, pressing smallholders to sell to middlemen who cater to buyers from Thailand and Vietnam.

Meanwhile, an equally essential rubber commodity segment, synthetic rubber has also suffered blows from the previous slackening of the automotive and construction sectors to the more recent declining trend in crude oil prices. Particularly taking the brunt are acrylonitrile butadiene styrene (ABS), styrene-butadiene rubber (SBR), and expandable polystyrene (EPS). Moreover, the economic slowdown in China, being a top consumer of synthetic rubber along with Japan and the United States, weighed down on synthetic rubber demand.

Recovery ahead    

However, as the region rallies behind low rubber prices, weakening currencies (such as in Malaysia and Indonesia), marginal machinery sales, and dropping crude oil prices,  positive developments unfurl, auguring a fresh, strong start in the coming years, both for the natural and synthetic rubber segments.

Taking a cue from Synthetic Latex Polymers: Southeast Asia Market Analysis and Opportunities, a market report recently published by consulting firm Kline & Company, Southeast Asia holds the fourth largest rank in the global synthetic latex polymers market, accounting for 8% of the global consumption.

Although the region is significantly smaller than the leading global markets, such as the United States, Europe, and China, Southeast Asia is still much larger than the developing markets of the Middle East, Brazil, and India. Within Southeast Asia, countries such as Malaysia, Thailand, and Indonesia account for 82% of synthetic latex polymers consumption. Acrylonitrile-butadiene (AB nitrile) is the leading product type, accounting for 44.6% of the total consumption in the region by volume, followed by styrene acrylics, according to Kline.

In terms of latex consumption, Malaysia and Thailand are at the top, with AB nitrile being a key material for glove dipping applications. Indonesia uses more styrene acrylics, whereas Thailand dominates in consumption of pure acrylics, which is the third-largest type of synthetic latex polymers consumed in the region. Kline reports that the Southeast Asian market for synthetic latex polymers is forecast to grow, increasing at a CAGR of 6.5% through 2018.

Key applications taking off

The Southeast Asian region accounts for about 80% of the world’s supply of natural rubber, mostly used for making gloves and tires. Tire manufacturing also accounts for about 70% of consumption of synthetic rubber in the region.

The growing automotive, construction, and consumer goods sectors in Asia are expected to significantly cut through the burgeoning global nitrile butadiene rubber (NBR) powder market; the latter is projected by U.S.-based Grand View Research  (GVR) to reach US$462million in 2020. GRV finds that automobile manufacturers are shifting production base from Europe to China owing to low cost skilled labor and improving infrastructure in the latter. Asia accounted for over 40% of the total market and is expected to witness increased share over the next six years.  Specifically, NBR will witness the fastest growth on account of the surging automotive industry in emerging markets like Mexico, China, and India.  Further increasing automobile demand globally is expected to boost market growth, said GRV.

Indonesia, which is currently making headlines for the new government’s bold initiatives for economic reforms, is likely to close the year on a bright note. According to Indonesia Tire Market Forecast & Opportunities, 2019, a study by global market research and consulting firm TechSci Research, the country’s tire market is projected to grow at a CAGR of about 10% through 2019,driven by the rising automobile sales in the domestic market, exports, the increasing automobile fleet size, and a sufficient raw material supply. Through the forecast period, the segment is expected to maintain its firm grip in the two wheeler tire sales, exceeding other tire sales in volume terms.  The research group added that low cost green cars (LCGC), Low Emission Carbon (LEC) vehicles, and environment friendly vehicles are expected to grow at a considerable rate in the Indonesian market. This trend will factor into the expanding automobile fleet size, as well as the tire market in Indonesia, TechSci added.

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