By 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% 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%; Indonesian SIR 20 and Malaysian SMR increased by 38% and 39% 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. 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.
Domestic scenario
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 % to 8.686 million tones during the 12 months ended December 2009 from 9.150 million tones 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 % drop in supply during 2009 from 3. 090 million tones in 2008 to 2.900 million tones in 2009. In Indonesia, the supply dropped by 5.7% in 2009 to 2.595 million tones from 2.751 million tones the year before. NR out put in Malaysia drastically fell during 2009 by 22.1% from 1.072 million tones in 2008 to 835,000 tonnes in 2009. India's production came down by 7.3% 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% output growth during 2009 while the supply in Vietnam grew by 9.7% during 2009. Cambodia recorded 81.1% rise in supply year before.
Out put in Sri Lanka grew by 4.7% during 2009. Production in January/ February 2010 had been 12.9 Kg.Mn, which is higher by 5.7% 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 tones, a rise of 11.9 %, compared to the previous forecast of a 3.7 % increase to 10.0 million tones, with higher out put seen in all the major NR producing countries.
The 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, is expected to record a further significant increase of around 5.7%, 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$ 86.
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. This may bring about a fall in the country's NR production by about 10 %. Thailand produces 250,000 tons of NR a month on the average, but traders expect the annual production to stay within 2.9 million tons, whereas the country's national estimates for NR production in 2010 is over3.0 million tons. The forecasted weather pattern suggests that the country's official estimates may look unrealistic. Indonesia had a massive earthquakes in some NR producing areas, 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 coefficient 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$ 86 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% 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% to 12.6 million tones in 2010, compared to a 14.9% 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% growth during 2009. Automobile tyres accounted for about 60% of the total NR consumption in the country. The total rubber consumption saw only about 2.55% 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 9-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% 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% of it's total NR exports of around 490,000 tons up to September 2009, was to it's neighbor 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% 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 tones in 2010 from 8.82 million tones forecast for 2009.Malaysian Rubber Board's estimates indicate that the country's current output of NR is around one million tones. 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% 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.
The Philippines, which has over hundred years of experience in natural rubber cultivation, has been a late entrant to the ANRPC. Rubber occupies about 130,000 hectare of cultivated land in the Philippines. 
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