Global rubber business continues to grow led by Asia pacific

Dr. N. Yogaratnam, Consultant/NIPM

RUBBER: International Rubber Study Group's (IRSG) recent estimates indicate that Asia-Pacific region has again become the dominant player in natural rubber (NR) business in 2006 and is expected to continue beyond.

Thailand, despite its political instability followed by the military coup, continues to be the leader in NR production. China, the largest NR and synthetic rubber (SR) consumer is on the verge of closing in on the USA for the leading global position in SR production.

Despite a marginal growth rate of 0.8% at the beginning of 2006, the aggregate of rubber output of NR and SR recorded an increase of 3.9% to reach an annual total of about 21.00 million tonnes in 2006.

On a global scale, the growth in NR production has continued to outpace that of SR. NR output increased to about 29.33 million tonnes at a growth rate of 5.7% while SR output recorded about 12.55 million tonnes at a growth rate of 4.3%. Asia-Pacific continued to lead the growth in regional NR production.

NR Production (‘000 tonnes)

Country			2004	2005	2006	Ranking

Thailand		2984	2937	2942	1
Indonesia		2066	2271	2468	2
Malaysia		1169	1126	1263	3
India			743	772	835	4
Vietnam			403	509	563	5
China			486	428	428	6
Sri Lanka		95	104	109	9
World			8638	8813	9316

Sharp increase in world NR output occurred despite a continued weak growth in the top rubber producing, Thailand. The growth rate in Thailand is only about 0.8% as compared to 8.5 in Indonesia, 8.9% in India, 10.9% in Malaysia, 13.4% in Vietnam and about 4.6% in Sri Lanka.

NR area and productivity

The global NR area, although has been increasing over the years at an average rate of around 4% per year since 1990, yet the increase had been at a declining rate.

The annual growth rate during 1900 - 1925 was 11%, declining to 3% in 1925-1950 with further declines to 2% in 1950 - 1975, 1% in 1975 - 2000 and 0% in 2000 - 2005.

Despite slowing growth in area, global NR output over the past twenty years, has increased significantly. The main reason being the increase in productivity (yield per unit area), with the use of high yielding trees and other productivity related agricultural inputs.

Output per unit rubber area, which increased by about 40 to 50 kg/ha every decade from 1960 to 1990, rose sharply in 2000 and 2005/2006 Asia pacific contributing significantly towards this improvements.

Sri Lanka's productivity stands at around 1,000 kg/ha/yr which is marginally higher than the world average.

However, high NR prices in the recent times, although volatile, may encourage growers to postpone their replanting programmes, thus delaying further improvements in productivity.

This may be compensated to a certain extent with new planting undertaken, although rubber has a long immaturity period. Sri Lanka has to identify short/medium and medium/long term strategies to keep pace with global increases and for sustainability of the rubber business in Sri Lanka.

The revival of reclaimed or recycled rubber industry particularly in India with NR market boom, is reported to provide about 10% to as high as 100% for substitution in some sectors such as the manufacture of black rubber products.

The French tyre giant, Group Michelin in partnership with CIRAD, a private sector research agency, is attempting to develop high-yielding NR clones that are resistant to most diseases, notably the most devastating South American Leaf Blight (SALAB).

The development of such clones would mean a major breakthrough in global NR production.

Asia-pacific has continued to lead the growth in regional SR production at a growth rate of 7.8% with a total production in the region of 5330 million tonnes in 2006. North America showed a growth rate of 4.6% with the total production in the region of 2517 million tonnes and the EU, 2691 million tonnes.

SR production

China with a growth rate of 13.4% and a production of 1849 million tonnes continues to be second only to USA and well ahead of Japan by a 15% increase in SR output.

Despite continued recovery in SR output in the USA, China is expected to become the world's largest producer of SR in the coming years.

NR/SR consumption

Global aggregate of NR and SR consumption is estimated to have increased to 21.81 million tonnes with the highest growth rate of 3.6% per year, recorded in the recent past.

Asia - Pacific continued to lead in global rubber consumption with China well established as the world's top rubber consuming country, while Japan is also relatively large in terms of rubber consumption.

As for other Asian rubber consuming countries India, Thailand and Indonesia have now outpaced the traditional countries, Korea and Taiwan.

SR consumption has continued to grow more rapidly than NR. It has been estimated that global NR consumption has risen to 9.17 million tonnes at a growth rate of 1.5% while SR recorded 12.64 million tonnes at a growth rate of about 5.2%. Current high prices of NR may have been a contributory factor.

NR consumption

The Chinese NR market has continued to expand with increasing volumes of material sourced from the international market in order to satisfy its raw material requirements

Global NR consumption (‘000 tonnes), 2006

Ranking		Country	  	‘000 tonnes     % of world total
		

1		China		2235		24.4
2		USA		1939		21.1
3		Japan		881		09.6
4		India		808		08.8
5		Malaysia	312		03.4
		World total	9175		100.0

Sri Lanka should exploit the vast potential in Asia-Pacific's NR market more intensively for maximum benefit in exports of raw rubber.

Medium term outlook

Global rubber consumption is forecasted to increase more rapidly in 2007 and 2008 than it was in 2006 with an average growth rate of about 5.9% to 23.10 million tonnes in 2007 and by 6.4% to about 24.6 million tonnes in 2008.

Asia-Pacific is expected to absorb much of the increases. SR is forecasted to be consumed more rapidly than the NR with the share of SR consumption to be in the region of about 57.4% of the total global rubber consumption.

In the NR production front, Indonesia is expected to play a leading role in the expected increase in global rubber production by about 6.2% per year in 2007 and 2008.

Forecasts: NR Production (‘000 tonnes)

Country			2006	2007	%	2008	%

Thailand		2983	3235	8.4	3375 	4.3
Indonesia		2469	2722	10.2	2897	6.4
Malaysia 		1250	1297	3.6	1276	1.6
Other Asia		2122	2261	6.6	2425	7.2
Africa			422	447	6.0	461	3.2
Latin America		209	228	9.1	239	4.7
World			9346	10071	7.8	10548	4.7

World SR production is projected to show an annual growth rate of about 5.1% per year.

This, therefore indicates that with consumption expected to be lower than production, an over supply of NR is anticipated.

Forecasts for SR is that the currently experienced deficit is expected to continue in the next two years also.

Rubber market

Global Rubber market is known to depend on several factors, the most influential being the relative size of stock to consumption levels of NR and SR. Forecasts indicate that the stock ratio of NR may rise during the next few years, but the level of SR may continue on the declining trend that was developed since early 2002, in the next two years.

Natural calamities such as E1 - Nino phenomenon that is expected in the first quarter of 2007 and beyond, and unforeseen political developments may tilt the scale, besides other extraneous factors such as global economy, crude oil price etc.

Sri Lanka being a small player although will not have the ability to influence global rubber market, yet is expected to enjoy the benefits of the on-going favourable market environment.

Rubber FOB prices may still remain at the U$ 1.75 to 2.25 per kg levels in the next two years, which is expected to increase the profitability of growers but the challenge to the consumers in particular the small and medium scale rubber based industries, will still remain.

Reference: IRSG report, 2006