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No easy bounce-back for Thai, regional rubber producers

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A rubber farmer taps a rubber tree in Narathiwat province, March 18, 2019. (Reuters file photo)
A rubber farmer taps a rubber tree in Narathiwat province, March 18, 2019. (Reuters file photo)

Thailand and the world’s other top rubber producers are starting to emerge from their worst quarter in over a decade, but the path to recovery looks fragile.

Though consumption from rubber glove makers is continuing to rise, demand from carmakers, traditionally the biggest customer base, is still down. Meanwhile, China reopening its economy has added some optimism, but concerns remain for the rest of the world, including the US.

In the futures market, rubber prices, which tumbled 27% in the first quarter for their worst performance since 2008, have since gained about 14%. However, physical prices have not changed much as there’s not enough demand from tire factories, according to Gu Jiong, an analyst at Yutaka Shoji, a broker in Tokyo.

“Prices can’t go up anymore because demand is not there,” Gu said by phone from Tokyo. Many rubber factories, including those that supply major tyre makers such as Goodyear and Bridgestone, are unable to sell physical rubber and are forced to deliver it to the futures market instead, he said.

With the outlook still fraught, major producers — Thailand, Indonesia and Malaysia — are coping in different ways. Thailand has chosen to use more rubber domestically as an ingredient for roads and guide posts. Indonesia says Chinese demand is helping, but overall exports are still declining and a recovery won’t be seen until the end of the year. And Malaysia is betting on rubber gloves to be its saviour.

Here are some comments from major producers on how they see the rubber market:

Thailand

Kajohnjak Nuanphromsakul, Rubber Authority of Thailand acting governor:

  • Exports of car tires have dropped, but latex prices have rallied above rubber sheets; outbreak has increased demand for concentrated latex used in the production of medical equipment like rubber gloves.
  • The top producer is expected to export about 3.7 million tonnes of rubber this year, down 5% from 2019.
  • Though the leaf disease that roiled plantations last year has eased, it’s still found in four provinces, which will cut supplies.

Pattarapol Wongsasuthikul, Thai Rubber Latex Group Plc chief executive officer:

  • Globally, supply entering the market is down about 10% over the past six months due to extreme weather in producing countries.
  • Drought in Thailand in March and April has decreased latex production from tapping.

Malaysia

Zairossani Mohd Nor, director general of the Malaysian Rubber Board:

  • Malaysia’s rubber industry is expected to grow 6.5% to 33 billion ringgit ($7.7 billion) compared with 2019.
  • The country’s rubber glove exports are projected to climb 15% this year to 20 billion ringgit.
  • Malaysia is expected to export 225 billion pieces of rubber gloves globally and country’s share of the global market is projected to increase from 62% to 65% this year.
  • Natural rubber exports are seen declining about 10% due to slowing demand, especially from China in the first five months of 2020.
  • The government is providing incentives to smallholders to encourage tapping and subsidizing costs, including paying the difference to farmers when prices fall below certain set levels, as well as cash aid during the monsoon

Indonesia

Moenardji Soedargo, chairman of the Rubber Association of Indonesia:

  • “Shipments are delayed or cancelled, there’s no business movement.” If a recovery happens in the fourth quarter, “that would be outstanding.”
  • Though demand for rubber gloves is increasing, Indonesia’s rubber industry isn’t designed to be able to supply the sector.
  • “Malaysia gets a business opportunity from this pandemic. For us, to change industrial design is not something that we can do in one year or two.”
  • Farmers are delaying tapping because prices and demand are low.



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