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iconThe Fundamental Factors of Rubber Market [   November  2019 ]

 

Thailand’s rubber market begins when farmers harvest latex, ribbed smoked sheet (RSS), cup lump rubber, and smoked sheet cutting. Then, these yields are sold through small, middle, large middleman or rubber cooperative to sell raw materials to the upstream rubber factories, such as latex factory, RSS factory, STR factory, rubber compound factory, mixtures rubber factory, etc. After that, it is distributed to domestic rubber-based products manufacturers and exported to foreign markets. 

In 2018, the most producing rubber raw materials were 60% of cup lump rubber and 40% of latex rubber, respectively (Office of Agricultural Economics, 2019). These materials were from three distribution channels within the country: 1. local middleman to factories 2. smallholders to factories, and 3. Central Rubber Market auction. In case, smallholders and rubber cooperative have strong collaboration. They will produce Ribbed Smoked Sheet and Air Dried Sheet to sell in Central Rubber Market. Then, the raw materials will be used by rubber processing plants to produce rubber-based products. In 2018, Thailand’s rubber production was 4.88 million tonnes (ANRPC, 2019). It includes 35.70 % of STR, 29.44 % of rubber compound and mixtures rubber, 17.04 % of ribbed smoked sheet, 16.60 % of latex rubber, and 1.22% of others (Office of Agricultural Economics, 2019). 85% of these processed rubber will be exported to foreign markets, while only 15% will be sold to domestic rubber-based products manufacturers, using in the downstream rubber industry, such as rubber tyres, rubber gloves, rubber band, para soil cement, etc. According to ANRPC, Thailand exported natural rubber 4.11 million tonnes in 2018, 68.85% of natural rubber and 31 % of rubber compound and mixtures rubber. Therefore, it can be inferred that there are two distribution channels, which are domestic sales and exportations.
There are many sectors involved in the rubber market, such as the production sector, distribution sector, and consumer sector. For the production sector, it consists of rubber smallholders, rubber fund cooperative, and rubber processing factory. For the distribution sector, it includes domestic rubber distributor and rubber exporter. For the consumer sector, it includes both domestic and foreign rubber-based products manufacturing, and Rubber Authority of Thailand. Generally, there are three practical trade. Firstly, it is direct trade between the exporter and the user by using the price of the Singapore Commodity Exchange (SICOM) and Tokyo Commodity Exchange (TOCOM) futures markets. However, there is no actual price for reference. The direct trade is favorable, as it is convenience and low cost. Secondly, it is the Futures Market, such as Thailand Futures Exchange (TFEX), Singapore Commodity Exchange (SICOM), Tokyo Commodity Exchange (TOCOM), and Shanghai Futures Exchange (SHFE). It is a hedge to offset both seller and buyer's risk exposures and limit themselves from any fluctuations in price. Lastly is the counter trade between Thai Government and foreign Governments. It aims to push and enhance exportations. However, it seems like the counter trade makes higher exportation costs. Moreover, the International Tripartite Rubber Council (ITRC) wants to set up a regional rubber market in order to establish price stability. Likewise, Thailand is researching the possibility to set Exchange Trade Fund (ETF) to establish price stability and to reflect the actual price in the rubber market.
From all the factors above, it can be inferred that Thailand’s rubber market is related to many sectors, including rubber smallholders, government sector, private sectors, production sector, domestic and foreign users, etc. Therefore, it is significant that all sectors should together push and develop Thailand’s rubber industry to international level with fairly to all sectors to establish Thailand’s rubber industry sustainability.

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