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New opportunities for the Thai rubber industry

EIC sees an opportunity for the Thai rubber industry to refocus towards value-added rubber products such as rubber gloves. Both the private and public sectors should collaborate on R&D for new products.

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EIC sees an opportunity for the Thai rubber industry to refocus towards value-added rubber products such as rubber gloves.

Both the private and public sectors should collaborate on R&D for new products. There are also opportunities to partner with Malaysian companies interested in investing in the rubber glove industry.

Highlight
  • Thai rubber manufacturer are marching into 2017 along with three major developments :
  •  1) rubber prices bottomed out last year, with the price of Ribbed Smoked Rubber Sheets (RSS3) rising along with crude oil prices
  • 2) rubber suppliers in the CLMV countries have stepped up their roles in diminishing Thai suppliers’ dominance
  • 3) increased bargaining power against tire companies after Sinochem’s acquisition of several rubber companies which concentrated the market into the hands of a few large players.
  • EIC sees an opportunity for the Thai rubber industry to refocus towards value-added rubber products such as rubber gloves. Both the private and public sectors should collaborate on R&D for new products. There are also opportunities to partner with Malaysian companies interested in investing in the rubber glove industry.

 

The rubber industry struggled with falling rubber prices during 2014 – 2016. This year, the industry took a positive turn along with 3 significant developments. First, rubber prices are projected to rise in 2017 along with the recovery of crude oil prices and reduced supply from floods in the Southern provinces, putting an end to the downward trend in rubber prices.

The price of RSS3 remained low during 2014 – 2016, with an average price of 55-57 THB/kg. In 2017, the average price regained its upward trend to move above 60 THB/kg. The main contributing factor is a rebound in global crude oil prices, which recovered to a level of 50-55 USD/barrel from as low as 37 USD/barrel in early 2016 (Figure 1). The rise in crude oil prices has been driven by an OPEC production cut and the recovery of the global economy, especially the U.S. Additionally, floods in the Southern provinces of Thailand in late December 2016 to January 2017 restrained rubber supplies.

EIC sees the Thai rubber output in 2017 reaching 4.3 million tons, a 3% drop from the previous year. Lower Thai output, combined with a decline in global rubber production over the past two years due to unsuitable climate conditions, translates to a 7.1% drop in global rubber stocks this year at 2.6 million tons (Figure 2). These two factors contribute to higher prices, signaling an end to the downward trend. EIC projects an average rubber price for 2017 of 72.5-77.5 THB/kg, with the price gradually declining in the second half of the year after rubber trees have shed leaves and Thai rubber production returns to normal.

Nonetheless, rubber prices will not rise significantly in the medium term given the projection of a small increase in crude oil prices. An increasing rubber supply will also put pressure on prices in the medium term.

Even though the recent recovery in oil prices has contributed to the rise of rubber prices this year, the price of oil is capped by the potential supply from shale oil producers in the U.S. EIC expects oil prices to move within a range of 60-70 USD/barrel in the medium term, restraining future rubber prices. Furthermore, the rubber supply is projected to increase with a global rubber stock that will begin accumulating in 2018 (Figure 2).

The second development is the reduced role of Thai rubber suppliers in the global market, while suppliers in the CLMV countries step up their production. Accelerated expansion of rubber planting areas in the CLMV countries in 2006-2018 will greatly increase production levels in these respective countries in 2013-2025. The IRSG (International Rubber Study Group) expects CLMV’s rubber production to increase from 1.4 million tons in 2015 to 3.2 million tons in 2025. The increase will make the CLMV’s share of global rubber production jump from 11% in 2015 to 18% in 2025. At the same time, the share of Thailand’s production will decline from 34% of total global production to 25% in 2025 (Figure 3). The change is due to a shift to other crops by Thai farmers such as palm oil, which provides higher returns. Moreover, the Thai rubber industry is also losing competitiveness to those in the CLMV due to their cheaper labor costs.

Author: Pharadon Heemmuden 

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Ecommerce

Disrupted by Covid-19, will South-east Asia’s super apps join forces?

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Disrupted by Covid-19, will South-east Asia's super apps join forces?

– Super apps explore inorganic growth options
– Gojek in talks with e-commerce company Tokopedia over $18bn merger
– Grab reported to be preparing for a public listing in the US
– Food delivery and financial services increasingly important segments

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After a year of external expansion and internal reorganisation due to Covid-19, South-east Asia’s super apps appear to be looking towards mergers and public listings as a strategy for future development.

In early January international media reported that Indonesian ride-hailing and payments giant Gojek was in advanced talks about merging with local e-commerce company Tokopedia, in a deal estimated to be worth $18bn.

Any potential merger between the two would be significant for Indonesia. The two local unicorns could create a digital powerhouse, with integrated services ranging from ride-hailing to digital payments, e-commerce and delivery.

A tie-up would also create numerous synergies, such as Gojek’s fleet being able to serve Tokopedia’s online shopping orders. However, there is also some overlap in the digital payments space, where Gojek’s GoPay platform competes with Ovo, which is 35% owned by Tokopedia, although there is speculation that Tokopedia may look to sell its stake in Ovo.

The news was followed by separate reports in late January that Grab, Gojek’s biggest competitor in South-east Asia, had selected investment banks Morgan Stanley and JP Morgan to help work on an initial public offering (IPO) in the US, set to take place in the second half of the year.

The Singapore-headquartered company, which operates ride-hailing, food delivery, e-payment and insurance services in around 400 cities across eight South-east Asian countries, is valued at around $16bn. Its IPO is expected to raise at least $2bn, which would make it the largest overseas share offering by a South-east Asian company.

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Economics

Thailand’s economic outlook for 2021

The government expects inbound tourism to be at around 8 million by the second half of 2021, well below 40 million in 2019

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The Thai economy will grow next year after contracting by almost 10% this year. Next year, the Thai economy is expected to expand 3 to 4% from this year. It will not be until the end of 2022 before the Thai economy returns to its pre-Covid level of 2019.

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Economics

Finance Ministry Considers Additional Incentives to Increase NSF Members

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BANGKOK (NNT) – The Finance Ministry is considering additional incentives to increase members in the National Savings Fund (NSF) as Thailand is projected to become a “super ageing society” by 2031.

Finance Minister Arkhom Termpittayapaisith said increasing state contributions to the NSF and extending the maximum membership age to 65 years old from 60 as stipulated by law are among the considerations.

He said Thailand is projected to become a fully aged society this year, meaning 20% of the total population is 60 or older. The country is projected to be a super ageing society by 2031, meaning 28% of the total population is 65 or older.

Mr Arkhom said retirement savings are vital because 20 million informal workers in Thailand are without mandatory savings programs.

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