Business Buzz: Indonesia, Malaysia Thailand Agree To Cut Rubber Exports

The southeast Asian countries make up the biggest exporters of natural rubber in the world. We can see the use of rubber in hundreds of daily commodities around us every day. From the wheel of our cars to the shoes we wear, we can find a rubber in so many products. Therefore, you can understand how important a role natural rubber plays in our lives. In today’s market, there are two main kinds of rubber available – natural rubber and synthetic rubber. Natural rubber is made out of the juice or latex of the rubber tree itself on the other hand synthetic rubber is made with the help of petroleum. So as a result, when the price of petroleum rises, the demand for natural rubber increases and vice versa, when there is a disruption in natural rubber prices, the people look for synthetic rubber.

Thailand, Malaysia, and Indonesia are the top three natural rubber exporters in the world. But recently, the International Tripartite Rubber Council (ITRC), have signed and agreed to cut the natural rubber exports. They have stated 200,000 to 300,000 metric tons will be reduced to highlight the “prevailing depressed NR price level”. On February 21, 2019, the ministers of all three countries came together and agreed to sign the treaty in front of an international panel. So today we will be discussing what is the impact of this decision by ITRC and different other aspects.

Export and import of rubber in these countries

As we mentioned above, Thailand, Malaysia, and Indonesia are the top exporters of natural rubber in the world. Setting up a business in Thailand of rubber production, it may be difficult but really profitable. Among the three countries, Thailand supplies with the largest amount of natural rubber to the world. Based on natural rubber, the country also has a huge production of synthetic rubber as well. In Thailand, there is a strong and efficient rubber production lineup which helps to manufacture several values added rubber products. Therefore it offers significantly greater chances and opportunities for the production of different varieties of rubber products or even the raw material.

The top 5 exporters of Thailand’s rich natural rubber include China, Malaysia, Europe, Japan and South Korea. Other than Thailand, Indonesia and Malaysia also have a good amount of export levels to the world. Even though Thailand has more than 35% of the total market share in the export of natural rubber, Indonesia also has a significant share of around 31% and Malaysia has 7.4%. So you can see that combining the world export % of these three countries they have contributed to almost 70% of the total manufacture of rubber in the world. The economies of all these three countries depend on the export and business of rubber throughout the year.

However, in the last couple of years, there has been a dramatic fall in the price of products which are made of rubber exports. Due to different government policies and regulations, demand and prices of export rubber decreased massively. Therefore anyone who is doing business in Thailand related to rubber products or exports must have a hard time a couple of months.

What led to the crisis that impacted so much?

Earlier, like 2-3 years back the prices of latex rubber price was increased in a continuous manner. The three countries – Thailand, Malaysia, and Indonesia were flourishing with natural rubber exports and it’s revenue that helped to strengthen their economy significantly. These figures gave the farmers great encouragement to plant and grow more rubber. Many of them also took certain measures to grow rubber plants even on unsuitable land. Many people started doing rubber business in Thailand and some even went to the extent of selling or totally converting their rice or paddy fields into rubber plantations.

Till 2012, the price of rubber was significantly high than where it is today. But all these unchecked and unauthorized measures lead to the oversupply of the product by huge margins than the original demand. In 2016, it was found that the numbers for the oversupply of rubber than the actual demand was staggering. As a result, the demand got easily fulfilled and the need for so much of commodity was not required. Many businesses faced huge losses and even innumerable independent rubber manufacturers are still trying to run a revenue with great hassles.

Therefore, to curb this problem the International Tripartite Rubber Council (ITRC) decided to reduce the number of exports almost 3 times for the coming few months of 2019 unanimously. Even though this problem can be solved in the course of a long time, at this current point there is nothing much to be done about the crisis. There are many sections of the people who actually blame the government to allow such unchecked businesses to set up and deal with rubber which leads to a dysfunctional business structure.

A promising and efficient solution is introduced

In 2017, Maierbrugger was published in a report that the government of Thailand is planning to launch a project which has been named as the “Rubber City”. The main idea is to prevent the falling of the prices in the rubber market, at the same time control the manufacture and export of rubber goods, products, and various other items. This will prevent a crisis of this sort to be avoided in the future. Here are the major aims and objectives of this new project.

● To maintain a commercial hub and a center which will only deal with rubber innovations and other industries which will grow in and around here.

● To attract investors and startup enterprises, to come and for starting a small business in Thailand. This will help the area to become more developed.

● This idea will make more jobs and opportunities for people to work and get employed at various companies and agencies.

● The formation of the Rubber City will also lead to the overall increase in the internal production of rubber. Therefore the sales and revenue will be much stronger and stable than before.

The project of Rubber City seems to be a promising solution to the natural rubber crisis in Thailand, Malaysia, and Indonesia. The Industrial Estate of Authority of Thailand (IEAT) has authorized the Southern region of Thailand which is close to the border of Malaysia to start working on this project. Starting a business in Thailand when the Rubber City is finally completed, you will need to analyze the situation and check the demand of that area.

Final Words

In 2019, the International Tripartite Rubber Council (ITRC) has taken a solid stance and necessary one, to address the growing issue of the decrease in rubber export and demand of the South East Asian countries. Due to such a step, there is a huge and promising chance for the countries and especially Thailand to recover from this economic scenario. You can get to know more about this incident on the news or papers which will help you to get clear ideas and updates about the various aspects of the natural rubber exports and demand in the world. Also, don’t forget to check all the sections of our article.

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