Background Competitiveness Analysis and Factors Affecting Trade Flow of Natural Rubber in International Market

2 synthetic rubber as a raw material for various vehicle components, one of which is tires. The International Rubber Study Group IRSG reports that total synthetic rubber consumption increased by 4.2 from 14.8 million metric tonnes in 2011 to 15.4 million metric tonnes in 2013; the production of synthetic rubber also increased by 2,5. Furthermore, all geographic regions experienced absolute growths in natural rubber production from 2011 to 2013. Asian natural rubber supply reached 11.2 million tonnes in 2013, while the European Union and North America were at 0.5 million tonnes and 0.3 million tonnes, respectively, for the same period. Asia is the largest supplier for natural rubber, as well as for synthetic rubber. The FPT Securities Joint Stock Company FPTS Vietnam report shows that the price of natural rubber from 2011 to 2014 faced high volatility Figure 1. In mid-2008, the price of natural rubber continued to increase, reaching its highest peak in the history of natural rubber at that time, at about 3,000 USton. The increase in price occurred due to the increase in crude oil prices, which is a raw material for synthetic rubber. Synthetic rubber is a commodity, which is, can be both complementary and a complete substitute for natural rubber so that when the price of synthetic rubber rose, it indirectly contributed to the increase in the price of natural rubber in the international market. At the end of 2008, the price of Table 1 Worldwide Production and Consumption of Natural and Synthetic Rubber 000 mt 2011 2012 2013 NATURAL RUBBER PRODUCTION Asia-Pacific 10456 10798 11211 EMEA 471 494 510 Americas 303 312 320 TOTAL 11230 11604 12041 NATURAL RUBBER CONSUMPTION Asia-Pacific 7555 7948 8261 EMEA 1663 1466 1475 Americas 1769 1667 1661 TOTAL 10987 11081 11397 WORLD SUPPLY-DEMAND SURPLUSDEFICIT 243 525 644 WORLD STOCKS 1 1736 2260 2904 SYNTHETIC RUBBER PRODUCTION Asia-Pacific 7573 7852 8351 EMEA 4218 4175 4189 Americas 3313 3069 2957 TOTAL 15104 15096 15497 SYNTHETIC RUBBER CONSUMPTION Asia-Pacific 7973 8416 8987 EMEA 3856 3641 3652 Americas 2980 2846 2815 TOTAL 14809 14903 15454 WORLD SUPPLY-DEMAND SURPLUSDEFICIT 296 194 43 WORLD STOCKS 1 4489 4683 4726 SR IN TOTAL RUBBER CONSUMPTION 57.5 57.4 57.6 Source: IRSG, 2014 3 natural rubber deceased because of the global economic crisis that led to the weakening of the automotive industry, further affecting the natural rubber industry. The real impact on the worlds natural rubber demand resulted in decreased and led to the declining price trend in the international market at a price range of 1,900 USton in October 2008 and further decreasing with the June 2009 price of natural rubber coming in at only 1,500 USton. The business results from the 1 st quarter of 2013 of most companies in the natural rubber industry are significantly lower than the same period of 2012 total revenue down by 33, profit before tax down by 56 due to lower consumption and lower selling price output down by 24 and price down by 10-14. With the currently declining rubber price, it indicates that 2013 was a difficult year for companies in the natural rubber industry. The governmenets of Thailand, Indonesia, Malaysia agreed to reduce the export volume of 300,000 tonnes to manage the decrease in price, an action that helped to prevent an oversupply situation in 2013 FPTS, 2013. Source: FPTS, 2013 According to the IRSG, the projection of world demand for natural rubber will reach 10.9 million tonnes by 2020 with an average annual consumption growth rate of 9, thus there will likely be a rubber shortage when the natural rubber supply is not experiencing high growth over 9. The majority of the demand for natural rubber is derived from the motor vehicle sector, primarily the tire industry. The largest market country in the world is China, which consumed more than a third of the global production in 2013. The demand for various other rubber products excluding tires will also increase due to the increasing levels of industrialization in developing countries. As shown above, natural rubber is one of the plantation commodities, which plays a major part in international trade. Each manufacturer is competing to utilize natural rubber commodities as a foreign exchange. Furthermore, the emergences of newly industrialized countries, the improved world economy and the growing population have led to the development of rubber as a commodity. The benefits of these improvements are not only felt by the main natural rubber producers; Figure 1 Natural Rubber Price Movement in USTonnes, 2008 - 2012 4 Indonesia, Thailand and Malaysia for example, but also by the importing countries. Many importing countries require a continuous supply of natural rubber as a raw material for strategic industries, such as the automotive tire industry, military industrial equipment and industrial medical facilities, among others. Producers want high prices, while consumers want low prices, therefore the balance between natural rubber production supplied by producer countries and natural rubber consumption for the needs of the industry in importing countries is critical to the creation of a mutually beneficial price for both countries.

1.2 Problem Statement

The supply of natural rubber in the world market is dominated by Thailand, Indonesia and Malaysia. According to UN-Comtrade, the natural rubber export share in 1987, Malaysia accounts for 40 percent of the total world exports, with Indonesia at 28 percent and Thailand at 22 percent. By period of 1990, however, the condition of trade had started to change, allowing Thailand and Indonesia to shift the position of Malaysia. Production in Thailand increased and ultimately reached 1.34 million metric tonnes, while Indonesia amounted to 1.3 million metric tonnes, and Malaysia amounted to 1.2 million metric tonnes Figure 2. This change was due to the improvement of natural rubber production in Thailand, while Indonesia experienced fluctuating growth. Moreover, the Malaysian production decreased due to several factors, more specifically the increasing cost of labor and the rising competition for land uses, especially with palm oil. This situation illustrates the increasing competition between the three major producers of natural rubber in the international market over the last several decades. Figure 2 The Development of Natural Rubber Export Volume Source: Author’s elaboration with data from UN-Comtrade, 2014 500000000 1E+09 1.5E+09 2E+09 2.5E+09 3E+09 1980 1990 2000 2010 Kilo g ram Year Indonesia Malaysia Thailand 5 Figure 3 shows some of the natural rubber producing countries in the world, with the majority of production being located on the Asian continent, especially in Southeast Asia. Currently, Thailand is the world’s largest producer of natural rubber producing 3.39 million tonnes in 2011. Indonesia is the second largest producer contributing around 27 of the world’s total natural rubber production. Malaysia produced 0.99 million tonnes and occupies the third rank in terms of production. India is the fourth largest producer of natural rubber in the world. In 2011, India produced 0.89 million tonnes of natural rubber, up from 0.85 million tonnes in the previous year. India contributes roughly 8 of the world’s natural rubber production. Other major producers include Vietnam and China, each contributing 7 to the world production. Meanwhile, in terms of consumption, China, the United States and India are the countries with the largest natural rubber consumption rate Figure 4. Overall, the increased consumption of natural rubber in Asia is due to the economic growth in this region which gives rise to the new natural rubber-based industries, for instance China and India. IRSG data showed that Chinas natural rubber consumption constituted 33 of the world’s total consumption in 2011, at 2.60 million tonnes. The USA surpassed India, as the second largest consumer of rubber at 1,029 thousand tonnes, followed by India at 958 thousand tones and Japan at 765 tonnes. Other major consuming countries include Malaysia, Indonesia and Thailand, which accounted for 26 of the world consumption of natural rubber. Figure 3 Natural Rubber Production 000 tonnes in 2011 Source: IRSG, 2011 Thailand, Indonesia and Malaysia differ in their individual export destinations. However, according to the IRSG data, these three producing countries all exported to ten primary importing countries. The primary importing countries are the USA, Japan, China, Singapore, Korea, Germany, Canada, India, Brazil and Belgium. As mentioned above, the competition between the main exporting countries is relatively high. Therefore, it is necessary for Thailand, Thailand 31 3394 Indonesia 27 2982 Malaysia 9 996 India 8 890 Vietnam 7 812 China 7 707 Others 11 1193