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12 Oct 2007


Natural Rubber: Exports Sluggish in 2007 Amid Heightened Competition (Business Brief No.2052)

Demand for natural rubber in the global market is expected to rise thanks to numerous supportive factors. Among them are expansion of the tire industry in the US, Japan, European Union (EU) and China as well as steep oil prices that have caused the prices of synthetic rubber – a substitute for the natural counterpart – to stay aloft. In 2007, exports of natural rubber from Thailand experienced a slump from what was seen last year. This has been particularly true for block rubber, ribbed smoked sheets and concentrated latex. Prices of locally-grown rubber have surged unfavorably over those of Indonesian produce – Thailand's archrival – blamed on the rising Baht. Several trade partners have thus cut their purchase orders with Thailand and turned to Indonesian rubber instead. Worse, the fact that ample rubber production in Malaysia, especially concentrated latex can meet domestic demand has dealt a blow to Thai rubber exporters. Up until now, Malaysia has ranked top as Thailand's latex importer.
Looking ahead into the next few years, exports of Thai natural rubber are poised to be confronted with fierce competition in the world arena, particularly from Indonesia and Malaysia. Expansion of rubber cultivation in these two countries since 2004 will likely pay off soon. The expected increasing supply of natural rubber in the world market will result in stiff rivalry in both production and pricing.
Besides Indonesia, Vietnam – another rubber producing country – is also worth watching. Despite their moderate rubber output compared to other large rubber producing countries like Thailand, Indonesia and Malaysia, Vietnamese rubber production has recorded the highest growth in average yield per rai and acreage under cultivation.
An interesting future trend in the expansion of production is that rubber producing countries are turning to cultivation in other countries. A study from IRSG (International Rubber Study Group) shows that China, Vietnam, Thailand and Malaysia are all interested in growing rubber trees in other countries because arable land available domestically is insufficient. IRSG data also points out that new investment in rubber cultivation will boost the total output to 1 million tons in the next decade.
It is projected that during 2007-2008, the price of raw rubber sheets will likely stall at around THB55-70 per kilogram. Rising or falling prices are dependent upon key factors of supply and demand where at present demand is higher than output. However, supplies are tending upward following expanded cultivation in each country, which will lead to rather high competition in rubber exports globally. Although Thailand is the world's largest rubber exporters, our advantage in rubber exports is dwindling. Meanwhile, Thailand is not the country that can define world rubber prices, which fluctuate globally.

The Thai government and relevant authorities of rubber industries will have to adjust in order to prepare for competition that is expected to become tougher, particularly in pricing. At present, the Thai Government has a policy of increasing the volume of rubber produced domestically to maintain the stability of domestic prices and support/promote rubber industries through such as means as providing preferential tax breaks and other privileges, including other measures to attract the industrial sector to use more rubber. This will help Thai rubber industries to sustain development with efficiency so that they can compete in the world arena. The authorities should promote the use of rubber and related products domestically and urge higher domestic consumption along with efforts toward greater exports. Besides this, they should help in rubber research and development as an important factor for expanded commercial use, particularly research on rubber product processing per the national research strategy (2008-2010.) The authorities have planned an overview scope of domestic research that relevant agencies will use as guidelines on rubber research. This plan can be divided into two parts: The first plan is research on the development of economic crop production to add value and lead to competitiveness and self-reliance. The second plan is research on the development of raw materials domestically and ways to add value to products to improve production and marketing potential. In so doing, rubber industries will be developed realistically and continuously. An increase in the use of rubber as a raw material in factories is will add value to the rubber industry. Exports of rubber products, which could replace the export of basic processed rubber is one way to increase income to the country, and can reduce the effects of global price fluctuations on rubber products in the future.

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