INDONESIA: Rubber price under pressure as oil price falls

The decline in the price of oil to USD 35 per barrel is expected to further depress the price of natural rubber, which has already experienced a 76.6 % decline in the last four years, from between USD 4 and USD 5 per kilogram to around USD 1.2 per kg.

 

The plunging global automotive industry had contributed significantly to the rubber price drop, since around 70 % of rubber sales go to the tire industry.

 

Indonesian Rubber Research Institute (IRRI) director Karyudi said crude oil is the main feedstock for synthetic rubber. With low prices and abundant oil supplies, more tire manufacturers are using larger amounts of oil, which means reducing the proportion of natural rubber, to produce synthetic rubber. “It has pushed the price of natural rubber down. The profit margin is now in the minus, by USD 1.5 to USD 1.8 per kg. The safe profit margin in the business is USD 3 per kg,” he told thejakartapost.com.

To help the farmers gain a better selling price, Karyudi urged the government to somehow reduce rubber tapping from the current frequency of 85 %, on average, to at least around 75 % nationally.

"If we can make the farmer reduce tapping by 10 %, the market price will be improved. Thailand has urged their farmers to reduce tapping," he said.

To reduce the rubber supply, he continued, the government should increase natural rubber usage, not only in the tire industry, but also in other sectors, such as rubber asphalt, or shock absorbers in bridges, railways and high-rise buildings.

"An Inpres [presidential instruction] to support the use of domestic rubber was prepared for signing, but in reality it has yet to be signed after such a long time. We must urge the President to sign it as fast as possible," Karyudi stated.

Source: Daily “The Jakarta Post”, Jakarta; 15 Dec 2015
(Syed Rashid Ali, Karachi, Pakistan)