Global natural rubber outlook encouraging
Dr. N. Yogaratnam
Global natural rubber (NR) prices continued to maintain their upward
trend fetching around US$ 3.00 in early 2010, says the International
Rubber Study Group (IRSG).
Prices increased on an average by 36 percent from early December
approaching close to US$ 3.00 level attained in early 2008. The physical
price index for Thai RSS 3 increased by 30 percent; Indonesian SIR 20
and Malaysian SMR increased by 38 percent and 39 percent respectively,
over the same period.
The upward trend is partly supported by fundamental factors as well
as improving market sentiment following an easing in the global
recession; physical prices also advanced following the surge in future
prices.
Rubber tapping |
Aggressive replenishing of stocks by buyers to avoid supply scarcity
over next few months on signs of demand recovery supported by the upward
trend in prices, is expected to continue during this period.
The trend in domestic market (Sri Lankan) is equally encouraging,
with rubber prices in the Colombo Auction reaching an all time high with
a kilogram of rubber fetching around Rs 450 in the 3rd week of April.
Latex crepe as well as RSS1 fetched these high prices in the same
auction. The RSS1 grade of rubber fetched only around Rs 105.00 per kg
at the auction in November 2008.
It is also interesting to note that, there is a good demand for the
lower grades of RSS as well.
This increasing trend in NR prices provides a tremendous boost to
domestic rubber producers, some of whom were out of rubber business due
to the drastic drop in NR prices that was experienced over the last two
years.
NR output
Global output of NR fell by 5.1 percent to 8.686 million tonnes
during the 12 months ended December 2009 from 9.150 million tonnes in
the previous year.
The fall in supply is attributed to a decline in productivity in
spite of expansion in yielding area due to adverse climatic conditions.
Thailand witnessed a 6.1 percent drop in supply during 2009 from 3. 090
million tonnes in 2008 to 2.900 million tonnes in 2009. In Indonesia,
the supply dropped by 5.7 percent in 2009 to 2.595 million tones from
2.751 million tonnes the year before. NR out put in Malaysia drastically
fell during 2009 by 22.1 percent from 1.072 million tonnes in 2008 to
835,000 tonnes in 2009. India’s production came down by 7.3 percent to
817,000 tonnes during 2009 compared to 882,000 in 2008.
In sharp contrast to the first four major producing countries
(Thailand, Indonesia, Malaysia and India), NR supply registered a
positive growth in Vietnam, China, Sri Lanka and Cambodia, due mainly to
expansion in yielding area.
China strengthened its position in the global supply of NR by
clocking 17.9 percent output growth during 2009 while the supply in
Vietnam grew by 9.7 percent during 2009. Cambodia recorded 81.1 percent
rise in supply year before.
Output in Sri Lanka grew by 4.7 percent during 2009.
Production in January/ February 2010 had been 12.9 kg.mn, which is
higher by 5.7 percent compared with the production of 12.2 kg.mn. in the
same period in 2009.
In 2010, with the expected higher GDP growth and an improving outlook
for prices, global NR production is forecast to reach almost 10.56
million tonnes, a rise of 11.9 percent, compared to the previous
forecast of a 3.7 percent increase to 10.0 million tonnes, with higher
output seen in all the major NR producing countries.
Despite domestic NR production which has been showing an increasing
trend over the last six years from 90,500 MT in 2002, reaching 133,400
MT in 2009, it is expected to record a significant increase of around
5.7 percent, in 2010.
If this trend in production continues, our total NR production in
2010 would be around 141,003 MT.
Challenges
Prices have surged across the world in recent times, following supply
crunch in the major NR producing countries.
The crunch was caused mainly by climate change and the surge in the
price of crude oil, now around US$ 80.
There had been a fall in production of NR in the major rubber
producing countries. The fall was mainly attributed to variation on
weather pattern. Climate change appears to have been a real threat to
several agricultural crops and a tree crop like rubber is no exception.
It had been reported that there were days of heavy rains as well as
hot sunny days during the peak yielding months of August to September,
in the Indian rubber growing areas.
While the rains had disturbed tapping operations, the unusually hot
days experienced in their rubber growing areas may have resulted in the
evaporation soil moisture and delayed nutrient uptake.
Rains continued with intensity in the other major rubber producing
countries of Thailand, Malaysia and even in Sri Lanka, whereas the
Indonesian crop, it has been reported, has been affected by dry weather.
This is reported to be owing to the unusual weather phenomenon, which
has caused rains or dry weather in different regions at the same time.
Moreover, heavy downpours have been forecast in Southern Thailand
during the three months of October, November and December 2010, which
may bring about a fall in the country’s NR production by about 10
percent. Thailand produces 250,000 tonnes of NR a month on the average,
but traders expect the annual production to stay within 2.9 million
tonnes, whereas the country’s national estimates for NR production in
2010 is over three million tonnes.
The forecasted weather pattern suggests that the country’s official
estimates may look unrealistic. Indonesia had a Massive earthquakes in
some NR producing countries, may also put NR production in disarray.
It is also known that among the terrestrial ecosystems, natural
forests sustain the most efficient moisture conservation system.
The water use by rubber plantations is still more efficient and is
estimated to be 500-600mm lower than the typical tropical rain forests
ecosystem.
The rate of evaporation is lower in rubber plantations compared to
the forest ecosystem where mean daily evapo-transpiration of rubber is
about 4.5 mm per day.
The crop co-efficient values of a rubber tree are reported to be
lower during dry seasons, being in the region of 0.179, and even under
wet conditions, it is around 1.058. The transpiration rate (TR) is also
lower than many other forest species.
These data highlight the ability of rubber plantations to conserve
soil moisture more efficiently than most other tree species and thereby
they are in a position to adapt themselves to drought conditions.
But the problem appears to be extreme weather conditions that are of
regular occurrence now and that this trend is expected to continue with
more vigor in future.
Crude oil
Price of crude oil moved ahead of US$ 80 a barrel now. Sheet rubber
that was fetching around US$ 3.00 may move up further.
Since the price of crude oil is showing a tendency to move up further
on higher consumption by the US, world rubber market is expected to
witness a continued price boom.
Rubber consumption
The Industry Report of IRSG, forecasts an improved out look for
global NR and SR consumption growth as compared to the previous
projections for 2009 and 2010.
The extended recession scenario would result in a 3.3 percent
increase in NR consumption to below 10.0 million tones in 2010, compared
to the 8.2 growth rate of 10.6 million tones envisaged in the base case.
SR consumption would rise 7.4 percent to 12.6 million tones in 2010,
compared to a 14.9 percent increase to 13.5 million tones in the base
case. In Asia/Pacific, the largest consuming region, the latest data
suggest that the sharp decline seen in total consumption earlier in 2009
may have been arrested.
Consumption of NR by Indian tyre industry has seen around 6 percent
growth during 2009. Automobile tyres accounted for about 60 percent of
the total NR consumption in the country. The total rubber consumption
saw only about 2.55 percent growth during the same period, due to the
decline in the consumption by non-tyre sector.
India is emerging as a large market for automobiles as its
fuel-efficient, compact environment-friendly small cars are increasingly
in demand in the Asian, European and Latin American markets.
Economic and the rising fuel prices are forcing people in these
countries to go for small vehicles.
The ‘scrappage incentive’ offered by the European countries for
replacing nine-year old cars with small, fuel-efficient vehicles has
helped the Indian cars to enlarge its market share in these countries.
Though this incentive ended in December 2009, but the trend in
preferring compact vehicles will continue.
China has been progressing steadily in rubber consumption, with the
tyre sector scaling up production in a bid to mitigate the effect of the
US Government’s imposition of 35 percent duty on import of Chinese tyres
into the country. The decision has seriously affected Chinese tyre
exports to the US. Robust domestic vehicle sales, however, have been
driving up demand for tyres in China, which in turn, has necessitated
large import of NR into the country.
Vietnam is expected to expand rubber cultivation by 220,000 hectares
by 2015, to enhance the total cultivated rubber area to 800,000ha.
The prospect of exporting substantial quantum of NR to China is
believed to be, behind the move for the expansion. Vietnam is a regular
supplier of NR to China. 65 percent of its total NR exports of around
490,000 tons up to September 2009, was to its neighbour China.
Outlook
Global NR production is forecast to rise by 11.9 to reach almost
10.56 million tones in 2010 compared to the 7 percent increase envisaged
earlier with higher out put expected in all the NR producing countries,
according to a Rubber Industry Report.
Asin out put is forecast to rise to 9.92 million tonnes in 2010 from
8.82 million tonnes forecast for 2009.
Malaysian Rubber Board’s estimates indicate that the country’s
current output of NR is around one million tonnes. The current yield
level stands at 1,400 kg per hectare. Malaysia targets to enhance the
productivity to 1,800 kg per hectare in five years’ time.
A proposal already drawn by them indicates, that the area under the
estate sector would be almost doubled from the current extent of 61,000
ha to 120,000 ha in five years’ time. Thailand is also on a move to
expand the rubber area.
The country has already extended rubber cultivation to 160,000 ha
during the five- year period between 2004 and 2009 and has drawn up
proposals for planting another 160,000 hectares from 2010.
Sri Lanka also had embarked on a new planting program in the Low
country Intermediate Zone covering an extent of 40,000ha, but the pace
of replanting activities indicates that the replanting target may not be
achieved as desired.
The Global demand for rubber gloves, is also expected to grow by 10
percent per annum says a ‘Rubber World’ report. The demand for rubber
gloves is reported to be increasing from India, China and Vietnam due to
increase in health and hygienic awareness. Plantation expansion plans of
the major NR producing countries have obviously been developed based on
the rising trend in rubber prices. Since the global supply of NR is
forecast to fall behind its consumption up to 2020, the current boom in
the NR market is expected to continue. |