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1 The Price Outlook for Natural Rubber 2008/2009 By Sang Udomjarumani CEO, International Rubber Consortium, Limited CEO, International Rubber Consortium,

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Presentation on theme: "1 The Price Outlook for Natural Rubber 2008/2009 By Sang Udomjarumani CEO, International Rubber Consortium, Limited CEO, International Rubber Consortium,"— Presentation transcript:

1 1 The Price Outlook for Natural Rubber 2008/2009 By Sang Udomjarumani CEO, International Rubber Consortium, Limited CEO, International Rubber Consortium, Limited The ASEAN Rubber Conference 2008 Crowne Plaza Galleria Manila, Philippines 5-7 June 2008

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3 3 As can be seen from the charts shown above, production in the 3 tripartite countries continued to grow since the year 1990. The annual growth rate since 1990 averaged about 5.0%. Total production of the three countries is approximately 71.5% of total world NR production.

4 4 Rubber Production in the Non-Tripartite Countries

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12 12 Average annual growth: 5.0%

13 13 Average annual growth: 2.8%

14 14 Future Growth of NR in the Non-Tripartite Countries

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22 22 Average annual growth: 4.3%

23 23 Effort by the tripartite countries to manage supplies With the objective to prevent over-supply and at the same time ensuring adequate supply to the industries, the tripartite countries are trying their level best to manage their NR production. Following measures have been taken: 1. Diversification to Other Crops With crude oil prices surging above US$100 a barrel, oil consuming countries are looking for alternative fuels to reduce their dependence on fossil fuel. Oil palm, tapioca, sugar cane are raw materials for making bio-fuels, thus prices of these commodities have gone up quite sharply recently due to the increasing demand. The increase in demand will encourage people to plant more of these crops, thus taking away some of the land areas that are targeted for rubber.

24 24 YearThailandIndonesiaMalaysiaTotal 200126. 200235.54.026.966.4 200360. 200461.25.020.786.9 200555.25.023.984.1 200642.544.936.0123.4 200735.250.024.4109.6 2. Replanting The three countries have continued to carry out replanting projects in their respective countries. Following table shows the areas replanted by the three countries during the past 7 years (in thousand hectares): Table 1. Replanting Areas in the Tripartite Countries

25 25 4. Diversification and Value Creation The tripartite countries are promoting the investments in downstream rubber-based industries to create more value for natural rubber. Domestic rubber consumption for rubber in the three countries are steadily on the increase. The following table shows the trend in domestic consumption in the three countries. 3. Re-zoning This is quite apparent in Thailand. Land in the South, due to abundance of rainfalls, will be more suitable to plant oil palm rather than rubber while rubber planters in increasing numbers are moving to the north and the northeast to plant rubber. The two regions will eventually become the major producing areas for natural rubber in Thailand.

26 26 Table 2. Domestic Rubber Consumption (NR + SR in thousand tons) YearThailandIndonesiaMalaysiaTotal 2001393.1243.0496.91,133.0 2002438.4241.0497.91,177.3 2003461.7269.0510.81,241.5 2004484.6317.0489.31,290.9 2005504.6356.0482.91,343.5 2006539.8486.0495.71,521.5 2007594.0530.0544.81,668.8

27 27 5. Monitoring and surveillance The three countries are closely monitoring the production and world demand for NR and the increase in new plantings in the tripartite countries as well as non- tripartite countries. This is to prevent the rubber industry from repeating the past mistake of over-production and the subsequent price collapse. 6. Regional cooperation Open invitations have been extended to other NR producing countries to join the tripartite rubber cooperation. All rubber producing countries who share the same aspiration are welcome to join in this regional rubber cooperation.

28 28 Expansion of production in non-tripartite countries Vietnam – Aggressive planting programs, including ambitious expansion plan to neighboring countries such as Laos and Cambodia. Cambodia – Plans are afoot for plantation projects sponsored by Vietnam, China, Malaysia and to a lesser extent, Thailand. Suitable land area for rubber approximately 460,000 hectares, of which about 70,000 hectares have been developed. (2006 figure) Laos – Large plots of virgin land are leased to the Chinese, Vietnamese and Thais for rubber. Disputes with local residents over land ownership are on the increase. (According to report by Reuters)

29 29 Myanmar – Investments mainly from China. China – Due to constraints of suitable land for rubber, government is encouraging the Chinese investors to establish production bases in other countries, including Laos, Myanmar, Cambodia, Indonesia and probably Africa. The Philippines – Ambitious plan to expand plantation acreage to 1 million hectare within 10 years.

30 30 India – Steady growth, aiming for self- sufficiency. Land constraints may limit future expansion. Africa – Big potential given political stability. Their proximity to Europe will be geographical advantage over their Asian counterparts as far as European market is concerned South America – Owing to proximity to North America and high rubber prices, it may induce big manufacturers like Goodyear or Michelin looking into potential for rubber growing.

31 31 Rubber Demand Top 10 Natural Rubber Consumers of the World

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45 45 The Vehicle Sector The global vehicle market for 2007 was a positive 64.72 million, up 3.9% from 2006. Passenger car sales were up 4.7% to 44.63 million with China contributing to 22.2% increase in sales. Commercial vehicle sales were also up by 2% to 20.09 million as compared to 19.69 million in 2006. Again, China was the main contributor, registering an increase in sales of 21.8% year-on-year. Passenger car production was up 5.5% to 49.74 million in 2007 from 47.19 million in 2006. China was again the main contributor with 21.9% increase in output. Commercial vehicle production was up 3.2% to 19.03 million. The single largest contributor was again China, with an additional production of 453,000 or 22.2% higher than 2006.

46 46 The Tire Sector Global tire production in 2007 showed moderate increase as compared to 2006. Passenger car tire production was up 2.6% in 2007 to 1,038.4 million as compared to 1,009.7 million in 2006. Commercial vehicle tire production was also up 3.5% to 395.4 million as compared to 381.3 million in 2006.

47 47 Demand Outlook 2008/2009 Demand for cars as well as tires in the Asia/Pacific region will continue to increase as more and more people in this region, in particular China and India, are getting more affluent. More highways will be built and more cars will be on the road, further increasing the demand for tires. Western industrialized countries including North America, EU and Japan, though not expanding as dramatically as the Asia/Pacific, are likely to sustain moderate growth.

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49 49 Price Outlook for NR in 2008/2009 Factors that may affect the price of rubber Bullish Factors »High energy prices will continue, making oil- based synthetic rubber more expensive. »Soaring food and other commodity prices will affect sentiment in the rubber market. »Unusual weather condition will continue to disrupt production in most of the rubber producing countries. »A weakening US dollar necessitates an upward adjustment in prices in dollar term.

50 50 Bullish Factors (cont.) »Continued strong economic growth in the two Asian giants, China and India will spur more demand for Natural Rubber. »Demand for bio-fuel may divert some of the rubber farmers to other agricultural crops such as palm oil, tapioca, etc., thus competing for land targeted for rubber. »Commodities futures will be a safer haven for investors as compared to other financial markets, attracting more hedge funds to invest their money in the commodities futures markets and bringing more liquidities to the rubber futures markets

51 51 Bearish Factors »U.S. recession may spill over to other countries, causing a global slowdown. »Weaker exports to the U.S. from the emerging economies as a result of a U.S. recession may curb demand for natural rubber. »Stronger regional currencies make exports from the region less competitive in price. »Production from new plantings in the region coming on stream. »Further crude oil price hike may discourage people from buying cars, thus reducing demand for tires.

52 52 Price Outlook Price of natural rubber will continue to remain strong as demand for cars in the emerging economies, in particular China and India, is expected to increase as more and more people in these two countries are getting richer. Imports of raw materials including rubber into these two economic powerhouses will more than off-set the impact of the sluggishness in demand from the developed countries, such as the U.S., E.U. and Japan.

53 53 Tightness in supply of NR due to unpredictable weather conditions will remain a major factor in determining the price trend. Continued weakness in U.S. dollar will require upward adjustment of prices quoted in dollar term. There is still no end in sight as far as the hike in crude oil prices is concerned. Many analysts are predicting a crude oil price of US$200 a barrel in the not too distant future. Higher oil prices mean a higher production cost for the oil-based synthetic rubber. An upward revision in the price of SR in the quarterly negotiation with SR consumers is imminent. This may encourage consumers to substitute part of their SR consumption with NR.

54 54 Possible brighter economic picture in the U.S. after the Presidential election in November may trigger a worldwide economic recovery sooner than expected. With soaring commodity prices, returns from investment in commodity futures may be a better investment than those of other financial instruments. Given the above scenario, rubber prices in the coming one and a half years are likely to remain high.

55 55 Caution Natural rubber has enjoyed a continuous six years of price boom. This unprecedented price boom may become misleading. Some producers may get carried away with the wrong understanding that rubber price will remain high and can never come down. I would like to caution again that the boom and bust cycle will repeat itself if every country continues to pursue its own rubber planting policies without consultation. The effort put up by the tripartite countries will be futile if every other country continues to go its own way. Only regional cooperation can prevent the world from facing another price bust similar to the one experienced in 2001.

56 56 Caution (cont.) The International Rubber Study Group (IRSG) forecasts that the world will consume a total of 13.8 million tons of natural rubber in the year 2020. Unless the producing countries step up production, there will be a shortfall of 1.4 millions of natural rubber by the year 2020 (Dr.Hidde Smit, Natural Rubber: A Global Perspective and Outlook for the Future, June 2007). This has triggered a spurt of many new rubber planting projects in countries across the region. If production grows at the rate of 3% per year, the world will produce a total of 14.3 million tons of natural rubber by 2020, resulting in a surplus in rubber supply.

57 57 Conclusion There is a strong possibility that the US economy has already bottomed out and the worst is over. The US economy and the world as a whole will experience a mild economic recovery starting the second half of 2008 and a more robust recovery in 2009. Rubber industries will benefit from this economic recovery.

58 58 Despite the economic slowdown in some of the worlds major economies, the International Monetary Fund forecast that the world will still grow by about 3.8% in 2008 and 3.9% in 2009. The Chinese GDP will grow about 9.3% in 2008, and 9.5% in 2009, lower than the 11.4% registered in 2007. However, Chinas GDP growth of 10.6% during the first quarter of 2008 may have surprised many analysts. I will not be surprised if the forecast for the rest of the year will be revised and given a second thought.

59 59 Asian Development Bank forecast that Chinas GDP will grow by 10% this year and 9.8% in 2009. Indias economy will grow 8% this year and 8.5% in 2009 while Vietnam is expected to grow 7% this year and 8.1% in 2009. All ASEAN countries will grow by more than 5% this year and will achieve higher growth in 2009.

60 60 Meanwhile, according to the latest report of the Chinese Academy of Social Sciences (CASS), the Chinese economy will grow 10.7 percent in 2008. China posted a GDP growth of 11.9 percent in 2007, according to the results of preliminary verification announced by the National Bureau of Statistics recently. With this optimistic outlook, it can only be concluded that growth in rubber consumption will remain strong in the coming two years. The outlook for rubber in the years to come is still bright.

61 61 Good Luck, Everybody! Thank You

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