Asia-Pacific's dominance in global rubber business to continue

Dr. N. Yogaratnam, Consultant, National Institute of Plantation Management

RUBBER: International Rubber Study Group (IRSG) has reported that four out of the five leading rubber (Natural and Synthetics together) consuming countries are from the Asia-Pacific region. Asia, which has been occupying a leading position in production and consumption of natural rubber (NR), further consolidated its position in 2005.

China had been in the forefront in rubber business in 2005, in terms of global market development, as well as being the largest NR and SR (Synthetic rubber) consumer, the largest SR importer, sixth largest NR producer and now a home to the second largest SR supply base.

NR production giants Thailand, Indonesia, Malaysia and to a certain extent India, have not figured in the top 5 NR importing countries because much of the rubber consumed in these countries are known to be from a domestic supply base.

India, Malaysia and Thailand which are major NR production and consuming countries are also not among the top 5 in terms of SR consumption/imports. A significant and relevant development in the SR sector was, despite a halving of Chinese growth rate in 2004, their output outpaced other SR producing countries and became the world's second largest producer, ahead of Japan and behind only USA, in 2005.

NR consumption

China continues to dominate the NR consumption scenario, topping the list of consumers (Box.1). Except Malaysia, all other leading NR consuming countries have also shown an increase in NR consumption in 2005. Malaysia's NR consumption seems to have levelled out for the past few years.

Besides China; Japan, India and Thailand have also increased their shares of the world NR consumption.

NR Consumption, 2005

Ranking   		Country         '000tonnes %

1  	China		1826.0		20.9
2  	USA		1159.2		13.3
3  	Japan		859.4		9.8	
4  	India		786.4		9.0
5  	Malaysia	385.8		4.4

NR production

Thailand, Indonesia, Malaysia, India and Vietnam have been top 5 NR producing countries with Sri Lanka going up to the 9th position in 2005 from its 10th position in 2004. (Box. 2).

Thailand, Indonesia and Malaysia together accounted for 72.6% of the total world production with Sri Lanka's share being a meagre 1.2%.

The top 5 NR exporting countries had been Thailand, Indonesia, Malaysia, Vietnam and Ivory Coast. Thailand alone, supplied more than 40% of the world's rubber requirement and together with Indonesia and Malaysia accounted for 84% of all exports. Vietnam, a fast growing NR producer, overtook typhoon affected China to become the fifth largest NR producer in 2005.

Sri Lanka's total production of NR increased by 6% in 2005 and was 104,500 mt. About 70% of this was consumed by the domestic rubber products sector with only about 30% being exported as sheet and crepe rubber. Production showed a significant increasing trend of 12% in the first half of 2006.

If this trend continues in the second half of the year also, 'Sri Lanka should be able to produce and additional 15,000 to 20,000 tonnes in year 2006, at least to meet the requirements of the country's rubber products sector which is in crisis due to escalating rubber prices.

NR Production, 2005

	Ranking		Country	        000 tonnes%

1 	Thailand	2910.8		33.5
2 	Indonesia	2269.8		26.1
3	Malaysia	1130.7		13.0
4 	India		770.5		8.9
5 	Vietnam		435.5		5.0
6 	China		428.0		4.9
9 	Sri Lanka	104.5		1.2

NR prices

NR prices increased sharply in 2005. This increase was achieved despite two unusually large seasonal variations, from which the sheet rubber was the worst affected. The underlying cause of prices being carried so high were tight supply conditions, exacerbated through bad weather in South East Asia and China and sharply rising oil prices.

All of which stimulated the NR market to continue with the boom that began in 2002, to price levels that have never been seen before, as high as Rs. 350 to 400 per kg in Colombo (about U$3.5 to 4 kg) last week.

NR forecasts

Global NR consumption in 2006 is forecast to improve slightly from last year to show a rise of 2.7% from 8.7 million tonnes to 9.0 million tones. However, there is expected to be a strong improvement to show growth rate of 4.7% in 2007.

(Box 3) China is expected to consume more than 5.5 million tonnes of rubber in 2006, an increase of over 10% year-on-year, due to China's fast economic growth and the huge amount of China's rubber based exports.

Forecasts for NR consumption ('000 tonnes).

		2005	2006	%change	2007	%change

Asia/Pacific	5240	5479	4.6	5772	5.4
European Union	1329	1357	2.1	1408	3.8
North America	1300	1262	-2.9	1301	3.0
Latin America	566	570	0.8	597	4.7
Non-Eu Europe	220	225	2.0	232	3.3
Africa		124	127	2.4	131	2.7
World		8780	9021	2.7	9442	4.7

World aggregate NR production is expected to improve from weather - influenced growth of 2005, which reached 8.76 million tonnes, to show growth rates of 4.5% to reach 9.15 million tonnes in 2006 and rising by 48% to 9.60 million tonnes in 2007.

Output is expected to increase more rapidly in 2006 and 2007 than it was in 2005. (Box 4.) Thai NR output is forecast to increase to 3.38 million tones in 2008.

Forecasts for NR production ('000 tonnes).

		2005	2006	change	2007	change

Asia/Pacific	8234	8614	4.6	9038	4.9
Africa	383	393	2.6	404	2.9
Latin America	193	199	3.3	211	5.7
World		8758	9152	4.5	9596	4.8

Asia/Pacific is expected to continue to show relatively strong growth. Surging commodity prices, natural disasters, man-made disasters political uncertainty and wars, failed to halt the march of global economic growth, led by China.

With demand outstripping supply and Asia/Pacific countries having both the highest surplus, like Thailand and Indonesia and the highest deficit China, the NR boom is certain to continue in year 2006 and beyond.

Nevertheless, from a turn around in recent years, the relatively high price of NR to SR may result in a slower increase in consumption of NR as compared to SR, a disturbing trend that has to be watched. It had been reported that the relative SR/NR prices have shown quite sharp movements during the past 15 years.

The SR prices have been generally higher than NR prices. Higher level of substitution will normally take place if the consumers expect the change in relative prices to continue for some period of time. Reference: IRSG report, 2006