MYANMAR: Falling Chinese demand hits rubber producers hard

As fears over China’s slowing economy send global rubber prices spiraling toward a six-year low, and demand for rubber from neighboring heavyweights such as Thailand dries up, plantation owners across Myanmar are shuttering their businesses. Stuck in limbo, they cannot sell at a loss, nor can they easily trade in the rubber business for another industry – a rubber plant needs to grow for seven years before it begins to yield.

“Changing the crop is not a good solution,” said U Khaing Myint, secretary general of the Myanmar Rubber Planters and Producers Association. Planting is not cheap – it costs between K2.5 and K3 million to plant rubber on 1 acre. “Rubber planters should persevere, the low prices won’t last forever,” he said. Myanmar rubber is not made to an international standard and always sells at a discount in the international market, compared to rubber made in countries such as Thailand, U Khaing Myint said. For example, he said, while RSS3, or ribbed smoked sheet 3, rubber typically sells internationally for USD 1,200 per ton, Myanmar exports sell at USD 900.

Last fiscal year, exports fell short of the 100,000 ton industry goal, at just over 76,000 tons, according to data from Myanmar’s Central Statistical Organization, down from a record high of 93,000 tons in the 2010-11 fiscal year.

U Khin Kyuu, who owns the 70-acre Zabudate rubber plantation in Hpa-an, said most rubber farms in the region have closed now. Mon State produces most of Myanmar’s rubber, followed by Tanintharyi Region, Kayin State, and Bago and Yangon regions. His own firm is closed, he said. If he starts tapping latex, the cost of labor means he would be operating at a loss. “Most companies stopped farming last April, and do not have any plans to start tapping latex at the current market price, nor to switch into another industry,” he said, adding that he is simply waiting for prices to start rising again and is surviving on the earnings from his other businesses.

For U Khaing Myint, a number of factors have combined to keep Myanmar rubber prices at rock bottom. “There is too much supply, world crude oil prices are the lowest they have been for more than a decade and demand from China is falling,” he said.

When the price of crude oil falls, the price of synthetic rubber made from petroleum products falls, forcing down the price of natural rubber.

Economic growth in China, the world’s largest automobile market, will slow to 6.8 % in 2016 according to the People’s Bank of China, the country’s central bank, meaning a demand shortage for rubber – which is mostly used to make tires.

Despite grim conditions in the industry once viewed as a potential money-spinner for Myanmar, local rubber producers believe that fundamentally the crop has a strong future in the country.

The industry has been growing fast since 2005, U Khaing Myint previously told The Myanmar Times. According to Myanmar Rubber Planters and Producers Association data, the country has 1.6 million acres of rubber plantation, 600,000 acres of which produce latex. The challenge now for Myanmar is to improve the quality of rubber production. The industry now depends on Thailand for processing and further export.

U Khaing Myint previously said producers have not been taking steps to improve their crop. If they took simple steps such as using better seeds, it could more than triple average annual yields per acre from 500 to 1800 pounds, he said. Rubber is considered a “promising export” in the government’s National Export Strategy, and the country’s first central market will open later this year in Mawlamyine in Mon State.

“This market will be one step toward controlling the quantity and quality of rubber for export,” U Khaing Myint said.

Source: Daily “Myanmar Times”, Yangon; 13 Jan 2016
(Syed Rashid Ali, Karachi, Pakistan)