Re: Past and future of the rubber price

[sashimaalTop contributor]

Good post Jana1, +

As you are an expert in this area, any possibility of starting a Palm Oil related thread as well (can add on to Alchemist's Cars/Buki Thread).

Thanks

[harieshaTop contributor]

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WATA and NAMU were the pioneers in oil palm in Sri Lanka followed by ELPL. NAMU is affected by low rubber prices. Only ELPL and WATA are managed to be in the winning streak. But WATA was affected in the current quarter. ELPL we have to see.

WATA and ELPL both have given more than 100% return in this run. I still hold WATA. But I feel we are reaching the end.

[harieshaTop contributor]

Jana1, do you know the percentages of local consumption vs exports of NR. I read awhile back that with the rise of Loadstar, Dipped and Tyre, the local consumption has gone up considerably. I also think that there are more NR consuming projects in the pipeline.

In 2013, 24 000 M.T raw natural rubber exported and 107,000 MT was local consumed. I don't know about the pipeline, they always talk about it. Even local consumption is gone up considerably, what is the impact in the rubber price? It will adjust with world mkt since our export revenue is almost 50% of local consumption of the finished products.

In 2010, 101bn local consumption versus  63 bn foreign. But in 2013 it was 105 bn local consumption versus 92bn foreign sales. Foreign revenue increases over time.

DIPD is actually doing non-medical gloves which make nearly 13bn rubber related products turnover. Only 0.5% of the 13bn product was sold in Sri Lanka. It has good portion of 92 bn total foreign rubber export.

If we come to tyre 25 % of the 5.8 bn TO is foreign sales. TYRE doesn't have much impact as its TO is just tine portion and it cant influence on local rubber price at all.

In case of REXP, 2.2 bn export versus 0.25 bn local. Most of Sri Lanka rubber related producing companies mainly target foreign mkts. So local rubber price should much with foreign to make sri lanka rubber product so competitive. Sri lankan government aware about the mechanism.

Cannot agree with Jana1. REXP is a very small company and DIPD do have their own plantations. The biggest rubber manufacturing companies in Sri Lanka are not listed. ie: LOARDSTAR.

Rubber manufactures are comfortable with current prices. So the sustainability factor should look at by the authorities. Always local rubber prices were higher than international prices. Due to this reason there were considarable latex imports also in the past.

I think government very correctly understood the situation and increased the CESS on imported rubber. Authorities are of the view that Rs.300/- kg should maintain for rubber in order to sustain the plantations.

[BackstageTop contributor]

Jana1, do you know the percentages of local consumption vs exports of NR. I read awhile back that with the rise of Loadstar, Dipped and Tyre, the local consumption has gone up considerably. I also think that there are more NR consuming projects in the pipeline.

In 2013, 24 000 M.T raw natural rubber exported and 107,000 MT was local consumed. I don't know about the pipeline, they always talk about it. Even local consumption is gone up considerably, what is the impact in the rubber price? It will adjust with world mkt since our export revenue is almost 50% of local consumption of the finished products.

In 2010, 101bn local consumption versus  63 bn foreign. But in 2013 it was 105 bn local consumption versus 92bn foreign sales. Foreign revenue increases over time.

DIPD is actually doing non-medical gloves which make nearly 13bn rubber related products turnover. Only 0.5% of the 13bn product was sold in Sri Lanka. It has good portion of 92 bn total foreign rubber export.

If we come to tyre 25 % of the 5.8 bn TO is foreign sales. TYRE doesn't have much impact as its TO is just tine portion and it cant influence on local rubber price at all.

In case of REXP, 2.2 bn export versus 0.25 bn local. Most of Sri Lanka rubber related producing companies mainly target foreign mkts. So local rubber price should much with foreign to make sri lanka rubber product so competitive. Sri lankan government aware about the mechanism.

Thanks Jana1 for the informative reply.

I think our Rubber and Polymer scientist deserve kudos for this achievement of high rate of value addition.
I hope that the day we don't export any NR without value addition is near.

[harieshaTop contributor]

I will quickly explain why I piked REXP as going to be a success story in 2012, which you might be aware if you have gone through my report.

Logic might be helpful for new investors to pick correct stocks in the future.

1. REXP was at a utter loss and there were lot of internal re-structuring under a solid management with negative NAV
2. The benefit they were going to get from US GSP consession
3. Impending Rupee Depreciation ( New comers might not aware that government did a sudden rupee depreciation in 2011 or 12, the effect took rupee from Rs.110/- to Rs.133/-) This was immensely benefited the exporters as a whole, but mainly to industries that were using 100% local inputs. REXP was in this category.
4. Falling rubber prices. When I was discussing REXP rubber prices have fallen to Rs.400/- per Kg from Rs.600/-+ level. Now it's around Rs.250/- per Kg.


When I discussed REXP for the first time almost all comments were negative and intimidating. But today REXP has gone to a territory even i never expected (Maximum I was expecting was Rs.120/-) and it deserves it. But other than the fundamentals low liquidity was also a factor.

[Jana1Top contributor]

Jana1, do you know the percentages of local consumption vs exports of NR. I read awhile back that with the rise of Loadstar, Dipped and Tyre, the local consumption has gone up considerably. I also think that there are more NR consuming projects in the pipeline.

In 2013, 24 000 M.T raw natural rubber exported and 107,000 MT was local consumed. I don't know about the pipeline, they always talk about it. Even local consumption is gone up considerably, what is the impact in the rubber price? It will adjust with world mkt since our export revenue is almost 50% of local consumption of the finished products.

In 2010, 101bn local consumption versus  63 bn foreign. But in 2013 it was 105 bn local consumption versus 92bn foreign sales. Foreign revenue increases over time.

DIPD is actually doing non-medical gloves which make nearly 13bn rubber related products turnover. Only 0.5% of the 13bn product was sold in Sri Lanka. It has good portion of 92 bn total foreign rubber export.

If we come to tyre 25 % of the 5.8 bn TO is foreign sales. TYRE doesn't have much impact as its TO is just tine portion and it cant influence on local rubber price at all.

In case of REXP, 2.2 bn export versus 0.25 bn local. Most of Sri Lanka rubber related producing companies mainly target foreign mkts. So local rubber price should much with foreign to make sri lanka rubber product so competitive. Sri lankan government aware about the mechanism.

Cannot agree with Jana1. REXP is a very small company and DIPD do have their own plantations. The biggest rubber manufacturing companies in Sri Lanka are not listed. ie: LOARDSTAR.

Rubber manufactures are comfortable with current prices. So the sustainability factor should look at by the authorities. Always local rubber prices were higher than international prices. Due to this reason there were considarable latex imports also in the past.

I think government very correctly understood the situation and increased the CESS on imported rubber. Authorities are of the view that Rs.300/- kg should maintain for rubber in order to sustain the plantations.

Oopss I thought load star is one f the Tyre's brand name. Thanks for the info, then I have to look load star turnover.

Govt increased by 10ts per kg cess is nothing compared to fall in price.

Regarding world and local price: Previously I was also in same impression as u by comparing 2010 peak prices and present bottom prices without discounting for currency depreciation. If u depreciate SL currency accordingly then the local price are almost adjusted with international price. In local sometime short term fluctuation varies with international. That is the only difefrence I saw.

Rs 300/kg is guaranteed price. How do u expect that as a minimum price? During last auction rss-4 price was 203 rs/ kg. it felt after budget. I don't think govt will control rubber price. When small holders recommended October to control prices and stop import of raw rubber govt suggested it will disturb mkt stability and local production insufficient..

[Jana1Top contributor]

I will quickly explain why I piked REXP as going to be a success story in 2012, which you might be aware if you have gone through my report.

Logic might be helpful for new investors to pick correct stocks in the future.

1. REXP was at a utter loss and there were lot of internal re-structuring under a solid management with negative NAV
2. The benefit they were going to get from US GSP consession
3. Impending Rupee Depreciation ( New comers might not aware that government did a sudden rupee depreciation in 2011 or 12, the effect took rupee from Rs.110/- to Rs.133/-) This was immensely benefited the exporters as a whole, but mainly to industries that were using 100% local inputs. REXP was in this category.
4. Falling rubber prices. When I was discussing REXP rubber prices have fallen to Rs.400/- per Kg from Rs.600/-+ level. Now it's around Rs.250/- per Kg.


When I discussed REXP for the first time almost all comments were negative and intimidating. But today REXP has gone to a territory even i never expected (Maximum I was expecting was Rs.120/-) and it deserves it. But other than the fundamentals low liquidity was also a factor.

Thanks hariesha, I remember ur points. But in third point u mentioned Rexp use 100% local input which is wrong. They use some imported raw rubber for hard rubber sector.

[Jana1Top contributor]

Jana1, do you know the percentages of local consumption vs exports of NR. I read awhile back that with the rise of Loadstar, Dipped and Tyre, the local consumption has gone up considerably. I also think that there are more NR consuming projects in the pipeline.

In 2013, 24 000 M.T raw natural rubber exported and 107,000 MT was local consumed. I don't know about the pipeline, they always talk about it. Even local consumption is gone up considerably, what is the impact in the rubber price? It will adjust with world mkt since our export revenue is almost 50% of local consumption of the finished products.

In 2010, 101bn local consumption versus  63 bn foreign. But in 2013 it was 105 bn local consumption versus 92bn foreign sales. Foreign revenue increases over time.

DIPD is actually doing non-medical gloves which make nearly 13bn rubber related products turnover. Only 0.5% of the 13bn product was sold in Sri Lanka. It has good portion of 92 bn total foreign rubber export.

If we come to tyre 25 % of the 5.8 bn TO is foreign sales. TYRE doesn't have much impact as its TO is just tine portion and it cant influence on local rubber price at all.

In case of REXP, 2.2 bn export versus 0.25 bn local. Most of Sri Lanka rubber related producing companies mainly target foreign mkts. So local rubber price should much with foreign to make sri lanka rubber product so competitive. Sri lankan government aware about the mechanism.

Thanks Jana1 for the informative reply.

I think our Rubber and Polymer scientist deserve kudos for this achievement of high rate of value addition.
I hope that the day we don't export any NR without value addition is near.

I hope so. Raw rubber export shows higher level of decline. Govt stock of rubber also increased to 10 mn metric tons in 2014 from 0 in 2010. Govt suggested to consider export using finished products since raw rubber export mkt is niche and cannot sustain.

[chutiputhaTop contributor]

Price Movement of Lat 5 Years

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Source - GIH Capital Research

[First Guy]

Is it showing an upward trend? Any experts on the subject? Recently KGAL dipped to low 80s, which is quite close to it's financial net asset value if I remember correct.

[sapumal]

Not an expert. But rubber prices can't have upward trend. World currently is in over supply situation. Only solutions is cut down rubber trees in Thiland, Malaysia.

[yellow knifeTop contributor]

Rubber is known as White Gold.. But as Jana as explained at the beginning of this article Rubber price was fluctuating widely throughout history..

Even in 1920s the British rulers found rubber price fluctuation as an issue. So a committee was appointed under Sir James Stevenson. His recommendation was to restrict production.

" The Stevenson Restriction Scheme came into force in Malaysia and Sri lanka, Britain's other main rubber-growing colony. " (p 42..How Asia Works)

So the announcement to reduce production to stabilize prices almost created a rebel in Malaysia. Large Plantations and small plots were given limits to produce. Smallholders protested and claimed their production is higher per hectare. That was against the expectation of British where they thought large plantations are more efficient. A survey was conducted and found small holders rubber production is very much higher than large estates. Thus the limit for small holders increased.

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[yellow knifeTop contributor]

Jana did a very good article on rubber and since he is present after a long vacation lets continue this thread on rubber .

***************************************

Government calls for importation of rubber to revive ailing industry.

Minister says entrepot trade should be allowed for rubber." Rubber should be allowed to be imported for re-export activities without any hindrances whatsoever, like what is happening in Singapore and Dubai.."
 
Maybe minister has forgotten the fact that both Dubai and Singapore are not countries where rubber is grown. In the book " How Asia Works" it says not to copy Singapore and Dubai as they are mere shipping hubs


Industry calls to restore fertilizer subsidy to improve production..

This factor was mentioned in many plantation related annual reports like ELPL. Many economists evangelize to remove subsidies to agriculture yet the same economists advice their countries to practice the same. US is the best example. Cotton in subsidized to such an extent where poor nations purely depending on cotton have to suffer...

[xmartTop contributor]

im all ears

Jana, please!

[BackstageTop contributor]

Some say that Rubber prices have bottomed out and an upward trend is on the cards.

Anybody following Rubber situ ?

[yaka]

I was watching the price movement. after touching 146 lowest now hoovering around 180jpy/kg in TOCOM.

you also may see.

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however there is no place to check rubber prices in SL. only site having detail I could find is not updated after September 6.

[BackstageTop contributor]

Thanks Yaka.
Will hunt for forecast.