Sector overview
Thailand is the world’s largest supplier of natural rubber. In recent years, the country has faced falling demand, particularly in China, a major rubber consumer, and oversupply at the global level. This has made the Thai government resort to subsidy and buying programmes to support rubber growers against a weak economic backdrop in 2014 and 2015.
The country produced 4.32mn tonnes of rubber in 2014, slightly up from 4.17mn tonnes in the previous year. Thailand produces four main types of natural rubber products – Technically Specified Rubber (Standard Thai Rubber or STR), Ribbed Smoked Sheets (RSS), Concentrated Latex and Compound Natural Rubber. In 2014, STR was the largest rubber production category in the country, accounting for some 42% to the total production, followed by RSS with a share of 20%, Concentrated Latex with 18% and Compound Natural Rubber with 20%. Some 88% of Thailand’s rubber production is exported, according to consultancy TRIS Rating, with China, Malaysia, Japan, South Korea, and the USA as the main destinations. Lower rubber prices have contributed to higher exports over the last couple of years. Thailand exported 3.6mn tonnes of rubber in 2013, up 20.6% from the 2012 volume. Rubber exports from Thailand grew by 8.1% y/y in the first six months of 2014.
Challenges
The global rubber price decline in 2014 made the Thai government encourage farmers to cut 160,000 hectares of rubber trees, which accounted for around 8% of the nation's total rubber-growing area, to make room for oil palms. To reduce supply in the near term, authorities have also been compensating farmers for replacing old rubber trees with new ones, which usually need seven years before they can be tapped. The steady decline in global rubber prices over the recent years has made the government buy rubber at above-market rates to support rural incomes in Thailand. In December 2015, the Thai government agreed to distribute USD 139mn as loans to farmers affected by the global rubber price slump.
Outlook
The natural rubber price has been on a downward trend since 2013 because of high inventories and production against a backdrop of slower demand. Higher domestic rubber consumption and the other measures adopted by the Thai government to regulate the rubber demand/supply imbalance in the country and support rural incomes, are expected to result in stabilisation or reduction of the Thai rubber surplus in the coming years. A rise in the demand from China is expected to help the Thai rubber industry rebound from 2016 onwards.